Though sale and supply of alcohol is out of the tax’s purview, liquor prices are set to rise as GST rate on liquor companies’ inputs is likely to increase production costs
Restaurateurs see a minimum increase of 12-15% in the menu price for liquor being served in restaurants, courtesy GST.
Eating out has become cheaper after India moved to a goods and services tax (GST) regime on 1 July, with customers paying 18% (even in air-conditioned restaurants), compared to the effective 20.1% they were paying previously. That’s 2.1 percentage points less.
But things aren’t so straightforward when it comes to drinking out. Liquor is outside the ambit of GST, and, as Karan Tanna, a Mumbai restaurateur and founder and chief executive officer (CEO) of Yellow Tie Hospitality, says, there is “some discrepancy and confusion on liquor”.
As he explains it, the only levy on liquor now is value-added tax (VAT) because GST is not applicable. This varies by state. In Maharashtra, for instance, it is 5%. With the service tax gone, liquor should get cheaper.
Still, this cheer will likely be short-lived.
Liquor companies are expected to raise prices. And restaurants may be forced to follow suit.
While GST on their inputs is likely to raise their production costs, they will be unable to claim any credit because sale and supply of alcohol is not within the GST.
“The introduction of GST will affect the company negatively in the short term as it won’t get input credit and the cost is expected to go up 7-9%,” Roshini Sanah Jaiswal, promoter and chief restructuring officer at Jagatjit Industries Ltd, said in an email statement. The company, based in Delhi and Punjab, is known for its Aristocrat brand of whiskies.
Restaurants and bars will have to raise liquor prices to account for this. They may have to raise them more because “input credit for services on the sale of liquor (in a restaurant) is not available (to them because liquor is outside the purview of GST),” said Rahul Singh, founder and CEO of The Beer Café, a national chain of beer bars.
“We see a minimum increase of 12-15% in the menu price for liquor being served in restaurants.”
Tax experts agree, saying that eventually drinking out in a restaurant will become more expensive.
“When I sell liquor at a restaurant, this is a supply of food and liquor, and I will have to charge GST of 18%,” said Suresh Nandlal Rohira, partner at tax advisory firm Grant Thornton India Llp.
“Effectively, I (the restaurant) am paying taxes on liquor that I cannot get credit on. So restaurants will have to increase the prices by the amount of taxes which they have to now absorb.”
