Why McAloo Tikki & Starbucks Didn’t Come Cheaper With Lower GST

With the lowered rates, the government has also taken away the benefit of input tax credit.

(Photo: Reuters/Altered by The Quint)

Things didn’t go down well with Indian customers when despite the slashed GST rates on AC and non-AC restaurants, the prices of McAloo Tikki burger and Starbucks Coffee remained more or less the same.

Earlier, the AC restaurants had a GST rate of 18 percent, while non-AC restaurants were taxed at 12 percent. But after the recent GST Council meeting in Guwahati, both the rates were revised to a uniform 5 percent on all restaurants except 5-star places.

Ideally, that should have made the edible items cheaper if not for a catch. With the lowered rates, the government has also taken away the benefit of input tax credit by which the sellers could deduct the tax paid on inputs from the final tax.

Customers realised that food chains McDonald’s and Starbucks had raised the MRP of the food items after the biggest overhaul of GST rates since it was implemented on 1 July. Many tweeted photos of their bills and tagged the Finance Ministry arguing that these companies hadn’t passed the benefit of a lower GST onto its customers.

In an interview with the BloombergQuint, Amit Jatia, vice-chairman at Westlife Development Ltd — the operator of McDonald’s outlets in west and south India explained the removal of input tax credit has raised the costs by 10-12 percent. He said the tax revision is “net neutral” for restaurants that buy raw materials from organised suppliers but it is the unorganised sector that has benefitted more.

Jatia also said that the benefit of the reduced rates can be seen in food items like the Maharaja Mac Burger which had its prices slashed by 25 percent, but for cheaper items like the McAloo Tikki burger, the rates remain the same.

Other than Jatia’s statements, McDonald’s also attempted to explain the prices in a tweet. It said that after taking the costs into account, the price of the items would have come down by only 1-2 rupees which “would not have made much difference to our customers”.

In a statement to The Quint, Tata Starbucks also reiterated what McDonalds put forth in its statement.

“Like many businesses operating in India, Tata Starbucks adjusted prices following the recent revision of the Goods and Services Tax (GST) structure. Ensuring savings for our customers on every product has been the priority for Starbucks during this process. The GST revision included the elimination of the input tax credit, increasing costs for the industry. As a result, we raised our base prices, while still providing savings for our customers after tax,” they said.

But some customers are still not buying the argument and asking the food-chains if they had lowered the rates when they were availing the benefits of the input tax credit.