'No GST on food bills': Chennai sweet shops are struggling to draw customers

“I am a first-generation entrepreneur and am facing great difficulty in running my business,” said 30-year-old Parthiban, the proprietor of Nithya Amirtham, a chain of South Indian restaurants in Chennai.

Seven years ago, Parthiban opened a small sweet shop at Arumbakkam in West Chennai. Since then, he began three other outlets, expanding to sell savouries like spicy mixtures and other snack items. His latest project is an air-conditioned South Indian restaurant in Mylapore in southern Chennai, which also sells sweets and savouries.

Last year, when the Union government decided to demonetise Rs 500 and Rs 1,000 notes, sucking out 86% of the currency in circulation in India overnight, fewer customers visited his restaurants for the next five months.

And just when his business started recovering, the Goods and Services Tax – whch was implemented across India on July 1 – struck. The prices of all items on his menu have increased, and subsequently, his daily revenue has dropped by 30%, he said.

The Goods and Services Tax replaces all other indirect taxes levied by the central and state governments. While the idea was to have a single tax applicable to all businesses across the country, the government has fixed multiple tax slabs.

This poses peculiar problems, especially for sweet shops. Each sweet has several components, which are now taxed at different rates. For instance, the GST rate for ghee is 12%, oil 18% and almonds 12%. This means sweet shop and restaurant owners pay different rates to procure raw materials. However, the GST rate on sweets is 5%.

“How do we fix our rates?” asked M Bala, the owner of Lakshmi Bhavan, a South Indian restaurant and sweet shop in Mylapore. “Do we make the customer pay for each item separately?”

The manager of Agarwal Sweets in Sowcarpet neighbourhood in northern Chennai, B Seenu, faced a similar dilemma. “We pay different rates for our raw materials,” said B Seenu, the shop manager. “But we are applying the GST rate of 5% on all sweets.”

Similarly, in the GST regime, the chargeable tax slabs for restaurants vary depending on whether they offer air conditioning. While non-air-conditioned restaurants are required to charge 12% tax from their customers, the rate for partly or fully air-conditioned restaurants is 18%.

Restaurant owners in Chennai say this has led to customers avoiding restaurants in favour of roadside eateries for their daily fix of dosas, idlis, sambar vadas and upma. Crowds have been thronging these eateries, said Parthiban. “People prefer restaurants that do not fall under the taxation structure,” he said. “We predict that more such businesses will come up in the unorganised sector.”

Problem 1: Too many invoices

Parthiban says he has faced significant problems in filing his GST returns every month, which his finance team is struggling to address. “We need another six months to settle filing GST returns,” he said.

Parthiban might just get some relief related to the filing of monthly GST returns. On Friday, Finance Minister Arun Jaitley, who heads the GST Council, announced a slew of revisions. One of the most significant ones was the relaxation for businesses with a turnover of up to Rs 1.5 crore a year – they can now file returns every three months instead of every month.

But for restaurateurs, the problems don’t just end with the frequency of filing. A major challenge they face is when invoices of the supplier and purchaser do not match.

In the GST tax regime, every company in the value chain has to only pay tax on the value it adds. Each entity in the chain is eligible for input credits – a tax refund or deduction equal to the amount of tax paid while purchasing inputs from a supplier. Both supplier and purchaser are required to upload their invoices on the GST portal. The supplier’s invoice details must match the invoice uploaded by the restaurant when it purchased raw materials. Only then can the purchaser claim input credit.

But filing invoices in the restaurant business is complicated as a number of different raw materials go into the preparation of each food item. Nithya Amirtham, for instance, receives supplies from at least 30 different wholesale outlets for its kitchen and sweet shop. Each of these suppliers, right from the vegetable seller to the carry bag vendor, have to upload their invoices on the GST portal for the restaurant to claim its full input credit for the month.

In the pre-GST era, Parthiban used to buy spices and pulses in small quantities from smaller vendors. After GST was rolled out, however, he patronises only those suppliers who have also registered for GST, so that he could claim input credit due to him in its entirety. But, so far, the process has not been smooth.

“Our suppliers are facing difficulties in uploading invoices sometimes because of problems with the site,” said Parthiban. He said that his restaurant has not yet received any input credit from the government.

Problem 2: Pricing confusion

In Mylapore, hanging on a wall in Lakshmi Bhavan, was a sign in bold letters saying: “No GST on our food bills”.

M Bala, the owner of the sweet shop and South Indian restaurant, said he was not ready to levy the Goods and Services Tax on his customers just yet. He said that though he was buying raw materials and was paying GST on them, he was not passing on the additional cost to the customers.

“Now everyone is eating only at roadside shops, to avoid GST,” said Bala. He said despite the “No GST” sign, customers at his restaurant were few and far between. “We are already having to dump excess food everyday,” he said. “If we begin to tax people, we won’t be in business anymore.”

Bala has registered for a GST number, but has not yet begun uploading invoices online. This was for two reasons. First, he was unsure which taxation slab his business would fall under. He is working out his annual revenue with an accountant he appointed recently. “I am expecting my revenue to fall below Rs 75 lakhs this year, since business has been slow,” he said. “But I will be able to tell for sure only in March.”

If his revenue falls within Rs 75 lakhs a year, Bala was hoping to opt for the GST composition scheme, which is meant to make compliance easier for small and new tax payers. Under this scheme, with regard to restaurant services in particular, suppliers of food and non-alcoholic drinks will have to pay only 5% tax on value added, but cannot charge tax from their customers or claim input tax credit. Under this scheme, Bala will bear the cost of the GST charged. “But this way, I can keep the prices the same, and retain my customers,” he said.

On Friday, Jaitley announced that the annual turnover threshold for eligibility for the scheme had been increased to Rs 1 crore from Rs 75 lakhs. This means Bala’s revenues must remain within Rs 1 crore for him to be eligible for the scheme.

Problem 3: Drop in sales

“Our business is getting hit everywhere,” said 37-year-old Navaratan Jain, who owns the Ratanchand Lodha biscuit shop in Sowcarpet market.

By noon on Wednesday, no customer had visited the shop, famous for its biscuits and nut-filled cookies. In the narrow outlet wedged between two large jewellery stores on Mint Street, Jain sat idly next to jars of sweet biscuits, waiting for customers. “Normally, during this festive season, I wouldn’t even have time to talk,” he said. “But ever since GST was introduced, we have had to hike our prices, reduce our quantity and we have seen a 40% drop in sales.”

The manager of Agarwal Sweets in Sowcarpet says the shop has also seen atleast a 20% drop in sales ever since the GST rollout. “If we used to make Rs 1 lakh a day, now we only earn Rs 75,000 a day,” said the manager.

Jain, as well as the others in the food industry, said that their troubles with accounting, as well as slow business, was a long-term problem.

“It is going to take some time to get better,” said Lakshmi Bhavan’s Bala.

Did he think that things will settle down over the next couple of years?

“Will I even be in business then?” he laughed. “I really do not know.”