Unhappy with the price hike introduced by restaurants after a steep reduction in the goods and services tax (GST), the government is looking to invoke anti-profiteering provisions.
While restaurants are free to alter prices on account of higher costs, most have said the latest hike was the result of the GST Council’s decision to do away with input tax credit while lowering the levy from 18% to 5%.
“If the impact of withdrawal of input tax credit is a sharp increase, they should have also reduced prices by a similar margin when GST was introduced in July. It is a fit case of anti-profiteering action,” a senior finance ministry official told TOI.
The official said the law allowed the government to take suo motu action apart from acting on specific complaints. “We will levy the maximum possible penalty if profiteering is established,” the source, who did not wish to be identified, added.
A host of chains, from McDonalds, and Starbucks to Domino’s Pizza, have already hiked the base price, while others such as KFC are planning to follow suit by next week.
The National Restaurants Association of India, which was lobbying on behalf of the organised sector, had estimated the input tax credit withdrawal would push up menu prices by 6-7%. In contrast, it had told the government that GST had resulted in a small gain of around 1% for restaurants.
While other associations have welcomed the move, NRAI members are seen to have moved to challenge the GST Council’s action, setting the stage for a possible escalation in the battle. On Thursday, the Union Cabinet had announced the establishment of an anti-profiteering body and has asked consumers to highlight cases of businesses pocketing gains since the launch of GST .
The finance ministry decided to withdraw the benefit of tax credit available on inputs as well as on rent after it noticed that the gain had not been passed on to consumers through a reduction in menu prices from July. Besides, it was finding it difficult to implement the scheme and convinced states to go ahead with the withdrawal of tax credits.