McDonald’s justifies raising food prices after GST rate cut but becomes a laughing stock on Twitter

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Published: November 16, 2017 7:31:43 PM

The popular restaurant McDonald’s reportedly raised the menu prices on at least some of its food products after the government reduced the GST rate from 18% to 5%, in what now seems to be a familiar pattern across fast food chains -- hike menu prices in the wake of reduced GST rates and pocket the difference in the name of input tax credit loss.

A Twitter user pointed out to the discrepancy by posting an image of food bill with 18% GST, and one with the same items at 5% GST, only to realise that the final price was same in both the cases. (Image: Reuters)

It seems to be a familiar pattern across fast food chains — hike menu prices in the wake of reduced GST rates and pocket the difference in the name of input tax credit loss. The popular restaurant McDonald’s reportedly raised the menu prices on at least some of its food products after the government reduced the GST rate from 18% to 5%. A Twitter user pointed out to the discrepancy by posting an image of food bill with 18% GST, and one with the same items at 5% GST, only to realise that the final price was same in both the cases, since the restaurant charged a higher amount on the base price itself. McDonald’s spokesperson was not available at office outside working hours at the time of writing this story.

McDonald’s posted its response on Twitter to angry consumers asking for clarification. “The Government has brought down GST from 18% to 5%, but there has been a removal of Input Tax Credit. Due to this, our operating costs have gone up. However, keeping customer convenience in mind we have structured the changes in such a manner that total amount paid by the customer remains the same,” the company wrote in a series of Tweets.

It may be recalled that the government slashed GST rate from 18% on all AC restaurants and 12% on all non-AC restaurants to 5%, but with the withdrawal of input tax credit. This means that restaurants cannot claim the refund on taxes paid by them on inputs or raw materials.

Now, restaurants such as McDonald’s seem to be citing withdrawal of input tax credit as the reason to hike food prices. Earlier yesterday, ET Now reported that Jubilant FoodWorks Limited has hiked prices across the menu on its Domino’s pizza products. The price of medium-sized pizza has been hiked by 6%. FE Online has sought more clarification from the company on the same.

The Twitterati, which was not pleased with McDonald’s move to hike prices in the first place, did not take kindly to their justification either. Angry people’s responses ranged from calling it ‘loot’ and ‘cheating’ to presenting the company with their own calculations and questioning how input tax credit loss warrants the price hike.

Earlier, the restaurant’s body had also sought to give a similar explanation. Rahul Singh, vice-president, National Restaurant Association of India (NRAI), said, “We welcome the reduction in GST slab from a very high 18% in an AC restaurant to 5% without any distinction of the air-conditioning…denying the ITC benefit goes against the very grain of GST and will push up the costs by 10% which will be passed on the menu price. So, effectively the consumer pocket will get a marginal benefit and not as it seems.”

While on the other hand, credit rating company ICRA has said that it was a positive move and will help bring down the cost. “This revision in GST rate for restaurants is positive, as it would bring down the dining-out cost, supporting footfalls and revenues at a time when most organised restaurants are struggling to grow demand,” ICRA Vice President and Sector Head Pavethra Ponniah had said to Firstpost.

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