The Real Life MBA is a series where InsideIIM and Professors from Top Business Schools learn the practicalities and challenges of running a successful business in India by interviewing business owners.
Recently, there was a joke going around social media on the Indian tax structure. It said, 'I went to a restaurant today and ordered some taxes, I got a little bit of food on the side.' Well, it's not as funny when you finally realize that it's true and the amount of taxes that you pay increase your bill by a third. Sometimes the different charges and taxes levied on your bill outnumber the number of items you called for. You have service tax, service charge, Swach Bharat Cess, Krish Kalyan Cess, VAT and an additional service tax if you call for liqour.
The GST will change this - all the various taxes will be subsumed under one head - GST. The rate will be the same irrespective of the city, the restaurant, the type of restaurant (AC and non-AC restaurants used to have different tax rates). As a consumer you will know even before you enter a restaurant the amount of tax you will pay. Mr. Prashant Issar, owner of the restaurant Mirchi and Mime in Powai, Mumbai discusses the implications of the GST bill with Professor Carlo Altomonte, MISB Bocconi.
They discuss how his business will be affected and how the sector will benefit in India with an introduction of such a tax and the possibility of a unified country into a single market. To know all you need to know about GST Bill in India, watch the video above.
Prashant and Prof. Altamonte reflect on the following points which could help the restaurant industry and Mirchi & Mime in general :
- Supply : With GST, the entire country becomes a supplier for Prashant. There is clarity of pricing as there are no inter-state taxes and there is no danger of goods being stuck at state borders waiting for clearance. This is even more critical for the restaurant industry because of perishability of produce. Prashant feels he can now offer more variety to his customers at no extra cost.
- Pricing : We saw above how pricing becomes clear for customers. However, there is one more aspect - with standard tax regime it is easier for Prashant and his team also to price products and he can do standardisation across geographies. All his restaurants can technically have same rates across cities.
- Expansion : GST will have a ripple effect when it comes to expansion plans. There is now certainty around the taxation structure across India. This makes budgeting easier as there will be certainty of costs with respect to inputs and hence expansion is easier with accurate forecasting. Equipment, machinery, furniture - everything will cost the same across India and this makes it easier for both Prashant and his investors to plan their expansion.
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