Kerala Government slams 14.5% 'Fat Tax' on junk food; First of its kind in India

Food delivery aggregator Zomato announced that the GST department in Thane has issued a tax demand of Rs 803.4 crore, including interest and penalties.  

According to a regulatory filing, the demand pertains to non-payment of GST on delivery charges from October 29, 2019, to March 31, 2022. The order was passed by the Joint Commissioner of CGST and Central Excise, Thane Commissionerate, Maharashtra.  

The total amount includes Rs 401.7 crore in GST dues, along with an equal amount as a penalty. Zomato stated that it intends to contest the order.  

"We believe that we have a strong case on merits, which is backed by opinions from our external legal and tax advisors. The company will be filing an appeal against the order before the appropriate authority," Zomato said in its filing.  

The company emphasized that it is prepared to take legal action, supported by expert counsel, to challenge the tax demand imposed by the authorities.

Hotel and Restaurant Association Western India (HRAWI) claims that the reduction in GST on restaurant services without input credit will impact the industry in a negative way. To this effect, HRAWI recently submitted a representation to state finance minister Sudhir Mugantiwar.

HRAWI president Dilip Datwani said “expenditure like capital expenses, franchising, outsourcing and select food items among others will take a beating as the GST paid on such services or expenditures will not be available for input credit. This not only discourages expansion or development, but also makes it difficult for establishments to pass on any reductions to the customers. We have therefore requested the government to retain Input Tax Credit (ITC) for effective reduction in burden on consumers at large. One reason our tourism industry fails to attract as many foreign tourists as it should is the heavy tax on tourism (23%). We feel that tourism exports should be treated at par with other exports, and such transactions be zero-rated under GST, without the flow of input credits. This could easily increase earnings by at least another 10-20%”.

Other key reconsiderations suggested by HRAWI included making the Integrated Goods and Service Tax (IGST) available for tourism accommodation services basing the rate categorization for hotels on transaction value rather than on declared tariff reducing GST on room tariffs of Rs7500 and higher to 12% and accordingly, bring the GST for restaurants at such hotels at par with all others, to 5%. The recommendations also included allowing hotels and resorts to unbundle package rates and not levying GST on complimentary meals, among other things.

The association has requested for the foreign exchange earned by tourism services to be treated as export or deemed export. HRAWI sources said that since GST on goods and services exported from India are exempted, the tourism industry should be treated no differently, if tourism exports meet all the criteria such as other exported goods and services, where the service provider is in India, earnings are in foreign exchange and buyers are foreign in origin.

National Association of India has said that eating will get more expensive if government goes ahead with the proposal of reducing GST rate of restaurants from 18% to 12% without input credit claims. As per media reports government are considering to bringing down GST rate from 18% to 12%.

Under the GST regime implemented on July 1, 2017, air-conditioned restaurants pay 18% GST on food. However, if the GST rate is brought down to 12%, then in the absence of input tax credit, they will not able to claim these tax rebates, resulting in an increasing in their operational costs by 7% -10%. In the earlier tax regime, restaurants were allowed an input tax credit on things like food items, cutlery etc, NRAI stated.

Ritaaz Amlani, President of the national Restaurant Association of India said” Under the earlier tax regime, the tax on processed food was at 5%, but now under GST, this has gone up to 12%. Taxes on many such inputs have gone up, so if we do not get an input tax credit, then our cost of running the restaurants will go up, leading to higher menu prices for customers. Best part about the GST scheme is complete pass- through of taxes via Input Tax Credit (ITC). ITC works in a way that all vendors and suppliers who may have earlier been in the unorganised sector are incentivised to come under the organised sector and file tax returns. Disallowing input tax credit will lead to higher operational costs for restaurants, ultimately leading to a rise in price of final products for consumers. Hopes the proposal is not implemented in its current form and that the industry’s views should be taken into consideration”.

The Hotel and Restaurant Association Of Western India (HRAWI) had organised a seminar on 'Direct Taxes' for its members in Mumbai last week.

Addressed by Anil Harish, an eminent speaker and an expert in Tax matters, the seminar enabled the attendee hoteliers and restaurateurs to understand matters that include the implications of the Union Budget, introduction of new policies, and the taxes levied among others.

Dilip Datwani, President, HRAWI, said, "Taxes form an important and integral part of any establishment. The seminar was conducted in order to brief our members and clarify their doubts on the proposed taxes in the Union Budget 2017-18 and its impact on the hospitality sector. Besides this, there were a lot of queries from the food and beverage operators regarding GST. The seminar in many ways proved to be an eye-opener for the attendees. We are glad to get such positive response from the members and plan to conduct more such seminars frequently in future."

The seminar also specified the Government's investment plans for allied sectors such as infrastructure, agriculture, education, and tourism, and discussed concerns regarding overlapping taxes.

The recent move by the Government of Kerala to impose 14.5 per cent fat tax on junk food may take the administrators to the court. The National Restaurant Association of India (NRAI) has decided to knock the court’s door if government levies the controversial fat tax on junk food sold in some restaurants in the state.

Riyaaz Amlani, President, NRAI informed that the association will take legal action if the tax is implemented. The industry body, which represents global and local restaurants across the country, has sent a detailed, written representation to the Kerala government. NRAI said that this is completely irrational and it will oppose it. If it comes into passing, association will oppose it legally as well.

Earlier, Thomas Isaac, Finance Minister, Kerala had proposed imposing 14.5 per cent fat tax on junk food such as pizzas, burgers, pasta and doughnuts, sold in branded restaurants. However, the suggestion was not welcomed by the NRAI and it sparked a big controversy within the state.

If state imposes such tax then it will become the first state to have such kind of tax. Industry estimates suggest there are at least 50-60 organised restaurant chains in Kerala, including global brands such as McDonald's, Burger King, Pizza Hut, Domino's and Subway. Amlani, who heads hospitality chain Impresario Entertainment, said the proposed tax was highly discriminatory and discretionary.

NRAI definitely not going to take this lying down and association will oppose it. There's no scientific basis for this, adds Amlani. Restaurant owners of the state are also seem to be very upset by the government’s move. This could trigger similar moves in other states. It is very unfair on us, commented chief executive officer of a leading restaurant chain.