Expect changes in GST framework in 2022 and reinstate of a higher GST on restaurants

On Wednesday, the Revenue Secretary, Mr Tarun Bajaj, said that the government might introduce changes in the Goods and Services Tax (GST) structure in 2022.

Mr Tarun Bajaj spoke at an interactive session on the Union Budget 2022-2023 arranged by the Confederation of Indian Industry (CII). He stated that the government knows that GST rates on a few products must be brought down for fair play.

He added that the government is open to looking at any restaurant industry demands. He pointed out that this industry recommended the government to move back to a higher rate that allows them Input Tax Credit (ITC) claims. ITC is the tax paid by a person on purchases of goods and services, which can be deducted from tax liability while discharging it.

Presently, a 5% tax is levied on restaurant services, whether or not it is air-conditioned, without the benefit of the ITC claims. The exact rate applies to restaurants attached to hotels charging less than Rs.7,500 per day as the room tariff. 

Moreover, restaurants in hotels that charge room tariffs of more than or equal to Rs 7,500 per day will be imposed 18% GST with ITC. An ultimate decision on this can be taken by the GST Council, chaired by the Union FM and state FMs.

The rate of 5% was recommended and imposed by the GST Council based on a study that the restaurants were not passing on the ITC benefits to their consumers. Tarun Bajaj also pointed out a huge gap that the industry earlier had a Revenue Neutral Rate (RNR) of 15.3%, whereas it is 11.6% at present.

He opined that the government needs to look at the macro level’s revenue aspects. He said they should not look at the microelements to observe what advancements one can make.

Mr Tarun Bajaj further added that the Finance Ministry must take up a matter to the GST Council if it has to change the coal cess. He also agreed that the present 28% GST must be lowered on high-efficiency inverter ACs.

On the income tax side, Revenue Secretary opined that the provisions on capital gains need an in-depth review as it has many categories.

After presenting the Union Budget 2022 in the Parliament by the FM, CII hosted their annual interactive session with the Revenue Secretary and his team of senior officials from the Ministry to discuss various amendments made in the Finance Bill.

For any clarifications/feedback on the topic, please contact the writer at annapoorna.m@cleartax.in