The Restaurant Industry has been a significant contributor to the country’s overall economy in many ways – from employment to tax revenues, to being a buyer of goods and services from several other industries and sectors which are dependent on and are positively impacted by it.  The Food Services Industry has grown significantly to Rs 247,680 crore (USD 48 billion), and the sector contributes about seven times more than the hotel sector in the country’s GDP, and is the third largest contributor after retail and insurance in the service segment. The industry is poised to see a phenomenal growth, with the organized sector growing at an expected CAGR of 16-17% to reach a size of Rs 145,770 crore (USD 28 billion) by 2018, and the chain market at an expected CAGR of 21% to reach Rs 33,250 crore by 2018.

The Restaurant Industry’s contributions are multi-dimensional. It engages more than 5 million people directly and 7-8 million people indirectly. Employment covers unskilled, fully skilled and specially abled people. The industry has also encouraged growth and value addition in other areas like agriculture, food processing, beverage, commercial kitchen and equipment, real estate and supply chain. The organised sector of the restaurant industry also contributes to the fiscal wealth of the country by contributing an estimated Rs 11,500-11,900 crore (USD 2200-2300 million) in taxes, which is expected to reach Rs 24,600-25,000 crore (USD 4700-4800 million) by 2018.

However, the industry is facing tough challenges in these difficult times. In an already heavily licensed and overtaxed industry, extremely high food inflation, coupled with ever increasing taxations, are significant burdens on those in the business. The restaurant industry is the only one which is burdened with all tax components – VAT, Service Tax and Excise.  For example, in an air conditioned restaurant with liquor service, VAT is charged at 12.5% on food and 20% on liquor. Added to this is the Service Tax at 12.36% (with 60% abatement). The total taxations on a typical billing are thus very high (25 – 27%).

In addition to the above, while the Central Service Tax is implemented equally, VAT rates not only differ from state to state, but its implementation is also in variance. For example, in some states (Haryana, Rajasthan, etc), the interpretation of what constitutes ‘sale’ and calculation of tax is different from say UP and Delhi. In these states, the VAT is being charged on the total amount after adding Service Tax to the bill amount, leading to double taxation.

It is pertinent to mention that implementation of the new Service Tax regulation on all A/C restaurants last year has had a severe negative effect on the restaurant industry. The industry thrives upon low price points, where easily affordable items starting from as low as Rs 20 to 25 are available to the customer. This is specially so in the Self Service / Delivery / (QSR) segment. As a result of the tax introduction and consequent increase in prices for the consumer, the overall consumption and volumes will fall significantly, and thus affect revenue generation for the government.

The above factors are impeding the growth potential of this otherwise promising sector.  Therefore, till the implementation of GST, there is an urgent need for giving this industry the required impetus by means of reductions in taxations. As an immediate step, the service tax should be withdrawn from restaurants as was the case before 01 May 2011. The government’s stimulus measures in the form of tax relaxations, would offer this sector its full scope for growth, which would, in turn, lead to a spurt in growth across other industries, and be a much larger source of direct and indirect tax revenue to the government.

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FoodService India Bureau provides a powerful platform for the Indian food service sector to share their views, exchange ideas and strengthen industry collaboration for profitable and healthy growth. It is loaded with industry research, trends, news, guest columns, and analysis to give market players cutting-edge insight into the dynamics of foodservice industry of India. The readership of FoodService India Bureau spans Restaurateurs, Hoteliers, Food Retail Start-Ups, Foodservice Retailers (Physical Eating Spaces) that include Restaurant Chains, Standalones, QSRs, Pubs & Bars, Cafes, Chain Hotels - (Restaurants & Banquets), Food Court Operators, Multiplexes; Travel Food Retail, Food Retail at Other Hubs, Institutional Catering, Street Food – Food Trucks, Vans & Carts; Foodservice Retailers that operate Cloud, Ghost, Virtual Kitchens; Online Foodservice Players/ Providers/ Aggregators. Functionally they are mostly MDs; EDs; CEOs; CTOs; CIOs; General Managers; Chief Purchase Officers; Chefs; Food & Beverage Heads; Store Managers; etc,. The above readership of FoodService India Bureau collaborates and exchanges inspiration and insights with peers, and actively engages with a vast array of support organisations that include General Contractors-Design & Build; Designers & Architects; Contractor/Suppliers of Food & Beverage Equipment + Fixtures, Furniture, Fittings, Capital Assets, etc.; Partners, Financers & Investors; Marketing & Efficiency Support Organisations; Consultants and experts in FS Formats, Trends, Cuisine Trends, Opportunities; Food Retail Tech Specialist Organisations; and Industry Associations working on broader interests of industry players and liaisoning within and with GoI. And also with Suppliers of consumables - Food, Beverage, Cutlery, Table Linen, Small Equipment, Disposables, Ingredients, Raw Material, other available for sale material, etc; Hospitality Training/ Hotel Management Institutes/ Recruitment & Training Organisations; Trend/Market-Footfall Research Agencies; Marketing Activation and Employee Recruitment, Training-Development Organisations. Note: FoodServiceIndia Bureau is also the digtal vehicle of the Indian edition of the well-respected FoodService Europe & Middle East magazine is a specialty B2B publication in the HoReCa (Hotel, Restaurants and Catering) sector in India. A bi-monthly print publication, FoodService India reaches out to key decision makers in the foodservice business in the country. For feedback, enquiries and/or editorial participation, please write to rajanvarma@imagesgroup.in