With an increase in service tax announced, the restaurants in India once again find themselves biting the bullet. The quick service restaurants (QSR), which are more preferred over the fine-dining restaurants will be hit hard by the increase in service tax that was announced in recently by Finance Minister
“We are not happy with the Budget that was announced as it will negatively impact our business,” said a senior official of the National Restaurant Association of India (
He added that the QSR category will worse hit as they will lose out on the affordability factor. “They cater to the working middle class. A lot of people prefer these restaurants as their prices are low and competitive,” noted the official.
The NRAI expects the hike in service tax to substantially impact the footfall in the restaurants across the country. Kumar explained that the increase in prices will ultimately result in a drop in the revenues of the restaurants as there will steep dip in both the footfall as well as the consumption.
“We are the only sector, second to the insurance that contribute majorly to the country’s GDP. However, we have to end up pay excise duty, VAT and service tax. The increase is definitely not good news for us,” he asserted.
Commenting on the issue, Amit Jatia, owner, McDonald’s India, West and South, said that the Union Budget announced is certainly not restaurant and consumer friendly budget. According to him, the impact of the announcements can be seen only after a few months. The hike is expected to affect consumers across the board and will increase the cost substantially,” noted Jatia.
He explained that consumers and the industry players will not just be impacted by the increase in service tax, but will also have to pay Swachh Bharat cess now. “We don’t know how that will be played out. It will definitely lead to some cost pressure for consumers and business. So we do expect the consumer sentiment to be hit by the move,” added Jatia.
Jatia elaborated that the company will be unable to negate the adverse impact of the additional tax and a price rise can be expected across the products. “The cost of our products will go up. As far as we are concerned, we will just charge the service tax on top of the bill,” he pointed out.
In the last five years, McDonald’s has been growing at 20% CAGR while the growth of the overall segment has been slow.
According to market reports, the entry of new players has fuelled the growth of this segment. The segment was pegged at Rs5,500 crore in 2013 and has been projected to reach Rs16,785 crore by 2018. However, it remains to be seen if the recent announcement is expected to hamper the growth of the segment.