Why Bengaluru restaurant food won't get cheaper despite GST cuts

Anisha Das, a software analyst and a passionate foodie, has stopped frequenting restaurants in Bengaluru. Though she loves savouring different kinds of cuisines from around the world, which the IT capital is famous for, 'eating out' often leaves a big dent in her salary.

"This is especially so after COVID," Das, who is in her late 20s, told The Federal. But, with the much-talked-about GST reforms, does she expect restaurants to become affordable again?

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"My expectations are low. Many reforms, like GST, can kick in, but restaurateurs probably have their own challenges and are looking to make profits. I don't expect much to change," she said wryly.

Das, whose hometown is Kolkata, is not far from the truth.

No way, say restauranteurs

If Bengalureans are expecting prices to drop at the many swanky restaurants offering cuisines ranging from Vietnamese to Mexican to Bengali after GST rates were cut and slashed on many items, they are in for a major disappointment.

Talking to The Federal, restaurant owners and heads of hotel associations categorically stated that the situation will remain "unchanged" for customers since the recent GST reforms have failed to leave them with any tangible benefits.

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As Subramanya Holla, president of the Bruhat Bangalore Hotel Association (BBHA), asserted, "Eating out will not get cheaper. We have not benefited in any way so how can we pass on anything to the customer? The food tax at 5 per cent remains unchanged, while the GST for commercial gas cylinders and real estate rentals continue to remain at a high 18 per cent."

Soaring costs

"The high rentals are already eating into our profits and then the government did not reduce the GST on it either," said Holla.

Rentals for commercial properties in Bengaluru have shot up 200 per cent, lamented another well-known restaurateur in Bengaluru, who preferred to remain anonymous.

Landlords have become greedy, citing land value to hike rentals, which have increased to Rs 10 to 15 lakh per month, said this old-timer, who was in the restaurant business even before the IT boom transformed the food business landscape earlier marked by small, distinctive, and even family-owned eateries.

Request for tax cuts

Today, the restaurant space in Bengaluru has become fiercely competitive. Every kind of cuisine from Asian fine-dining to Italian to Spanish is found in the city. Situated cheek by jowl in areas like Indiranagar and Koramangala, it is a veritable feast for food lovers.

In a recent trend, to beat the competition, upmarket restaurants are creating high-end, exclusive spaces with limited seating and steeply priced contemporary twists on international cuisines to attract customers.

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"Every week, I attend the launch of four new restaurants in the city. Earlier, it was not considered elite to be in the restaurant business but now there is a complete shift and people are ready to invest in the food business. The more recent trend is for multiple partners to get together to open a restaurant," said Holla, adding that they have 3,500 restaurants in the association, while 35,000 restaurants and hotels are registered in the city.

Eating out will not get cheaper. We have not benefited in any way so how can we pass on anything to the customer? The food tax at 5 per cent remains unchanged, while the GST on commercial gas cylinders and real estate rentals continue to remain at a high 18 per cent: Subramanya Holla, president of BBHA

Middle-level restaurants can expect a profit of 20 per cent, while fine-dining restaurants can make up to 30 to 40 per cent if their turnover is high, he said.

"In this competitive environment, it is difficult for the hotel industry to survive," said GK Shetty, president of the Karnataka State Hotel Owners Association.

Call for exemption

Welcoming the government's decision to reduce GST on many items, Shetty said, "The public is asking us when we will reduce hotel food and room rates. They badger us, demanding to know if biryanis and dosas will become cheaper. We tell them, unless we get tax exemption from the government, it is impossible to reduce rates."

Prices have come down on items like ghee (from 12 per cent to 5). Curd and oil are at 5 per cent GST. "But they are not significant enough for us to pass on to the customer," pointed out Shetty, who owns many restaurants and hotels in the city.

Shetty appealed to the government to reduce the GST on building rent from 18 per cent to 5 per cent. "It is simple — once they do that, we can pass on the benefits to customers," he said.

The Bruhat Bangalore Hotel Association plans to approach the Centre in December during Parliament's winter session to make a representation to reduce the GST on commercial LPG cylinders and rentals.

Hotel room rent

Under the new slabs, hotel rooms priced at Rs 7,500 or less per night attract a GST of just 5 per cent. For such rooms, the GST rate has been reduced from 12 per cent with input tax credit (ITC) to 5 per cent without ITC.

However, Bengaluru hoteliers want the cut-off for this slab increased beyond Rs 7,500. "The customer pays GST and the hotels do not receive any ITC benefit from the government from this. Therefore, we want the cut-off to be higher than Rs 7,500. Five-star hotels will also not be impacted by the GST reforms," said Holla.

Customers visiting restaurants can now expect soft drinks, which now attract a "sin" tax, to become costlier by Rs 4. A small comfort is that GST on water bottles is capped at 5 per cent, making them cheaper by Rs 2 apiece.

Consumers lower expectations

Many young professionals in the city remain sceptical about whether hoteliers will ever pass on GST benefits to customers.

A 26-year-old market researcher who tries out the rich variety of restaurants in the city on weekends said that it would be "ideal" if they would lower their prices, since ingredients have become cheaper. However, he added: "It seems unlikely they will do this since they have already established their products at a certain price and to bring it down would undervalue them. And, in a city like Bengaluru, with its high-end, image-conscious restaurants, it may just be counter-productive to go down that path."

Vinod Kaul, the owner of Harima, one of the oldest Japanese restaurants in Bengaluru, says even survival is tough.

''Restaurants are unable to pass on any benefits because they have been bleeding for a while due to high rentals and high utility charges. Quality ingredients are also expensive. To top it, delivery platforms charge very high commissions on orders, sometimes as high as 25 per cent. Due to all this, restaurants will first need to stabilise their profitability for their basic survival. It's only over a period of time if restaurants can work out a more reasonable deal with these platforms and if rentals and other expenses come down, will they be able to pass on any GST benefits to customers,'' Kaul told The Federal.