Currently, the finance ministry is preparing for the upcoming fiscal year 2022-2022, for which the union budget meeting will take place on Feb 1, 2022. With their goal being emerging India from the economic slump that resulted from the pandemic, while simultaneously creating a budget that can prepare the market from the approached 3rd wave. The government has a lot to contemplate from the low industrial output and recessions of service demand ahead of the meeting.
Subsequently, industries like quick food restaurants and F&B highly anticipate their evaluation. It is time for the government to restore tax credit, and there should be a sanctioned loan for the industry. The restaurant industry suffers a lot because of the court's multiple operating hours and capacity restrictions and the lack of support from several property owners. Subsequently, the industry desires low interest at 2 % or interest-free subsidised along with a lower tax structure. It could help restaurants shut down permanently due to Covid-19 restarting again with low-interest working capital loans. As none of the previous years' meetings came to their relief, the expectations from this fiscal year become more critical than before. Here are the budget expectations of quick-service restaurants in India.
The restaurant industry actively seeks tax holidays: When the pandemic began in 2021, the government assigned collateral fees loans of 3 lakh crore to MSMEs to improve the restaurants and the working capital requirements. These loans get sanctioned with a one-year moratorium period with repayment until four years. However, restaurateurs did not witness any massive benefit from the move because eventually, they still had to pay off their loans. Several states that Moratoriums didn't work for them. Instead, they would prefer implementing a tax holiday that could provide them relaxation from paying sales tax for a year.
The quick-service restaurants are highly pursuing the government to implement tax holidays and reduce fees from the excise department. According to India's national reports restaurant association ( the representative body of restaurants), restaurants witnessed their business halving from 4.23 trillion Rs in 2020 to 2.0 trillion Rs in 2021. Apart from that, the pandemic resulted in the closing of nearly 30% of the restaurants permanently.
GST input tax credit is long due in the quick-service restaurant industry: For more than four years, the industry has been demanding clarity regarding GST input credit. Simply putting the scenario, when a restaurant buys a product or goods item for cooking, they can pay a direct GST on that product to the government. The range of tax could be from 5% to 28% on the input bought. Furthermore, when selling the food to the consumer, they are charged 2.5% GST and 2.5% SGST. But the restaurants do not receive any input credit for the goods they purchased. It displays a comparative drawback for the restaurant and food industry, as other sectors receive their input credit back, making restaurant chains the only industry in India liable for GST input. They have to pay a considerable part to the government as an up-front at the beginning of each year. Especially in the Covid era, when it took restaurants almost a year to open their business, the GST tax input became a huge burden. Therefore, the sectors seek a GST tax input implementation from the government. Still, due to the restaurant industry not falling under any particular assigned ministry, often they are not nudged to be prioritised.
A licence clearance mechanism can help during the closed months: Each state is responsible for assigning the licensing of the restaurant industry, including fees that are paid to the excise department for various kinds of liquor. Most restaurants had already spent a hefty price for their license to the state excise when the Covid 19-second wave rose in April 2021.
It is collected upfront in March each year, after which restaurants were primarily ordered shut for two months. Similarly, this year, Omicron Variant and daily cases led to the repeated shutting down of restaurants. This became a deficit trend for the business as it practically runs on generating cash flow, so when there is service restriction like this along with mandated heavy license fees, the industry gets harmed severely.
This year the government is expected to show leniency towards the restaurant chains and understand that they are substantial employment generators with high economic benefits. The GOI can decide to extend the license renewal policy from three to five years to resolve the issue. Likewise, single-window license clearance should be considered instead of adding it to the cost of the business; it will enable chains to carry the business more smoothly and help lessen the burden.
Furthermore, the GST structure has a chaotic distribution, which often cause a lot of confusion for the in-house restaurants. For instance, alcohol gets purchased under excise; however, it should be under the GST net. Making the tax distribution consistent would help reduce the difficulties, allowing the industry to put their full attention into widening their business scale.
In FY-2022, cloud kitchens and quick service restaurants have together developed fine dine restaurants, bars, pubs, and clubs that have been a success, despite the pandemic. The Indian food service industry (FSI) is growing 9 % CAGR over F20-F25. As per Motilal Oswal Financial Services (MOFSL), quick service restaurants and FSI's growth is primarily driven by urbanisation, rising income levels, and innovative offers that appeal to the millennials. As the dynamics of the F&B space is growing, so is the food tech and food delivery chains. The post-pandemic world will witness a high demand within the FSI India which is led by a sustained rate of high food delivery during the pandemic. Further, these estimates get elevated due to consumers' increased adoption of technology.
So, to firm the rise of quick-service restaurants and F&B chains, things like liquidity, support tax rationalisation, moratoriums, tax reliefs, incentives etc., should be thoroughly discussed and implemented accordingly by the government during the union meeting. This can become critical for the restaurant industry to thrive further than the other sectors.