Your Maharaja Mac burger is 25 percent cheaper now. McAloo Tikki isn't.
That's because Westlife Development Ltd., the operator of McDonald's outlets in west and south India, has passed on benefits of a lower Goods and Services Tax to consumer on its iconic products. Prices of best-selling value items like McAloo Tikki are already low with or without the GST, said Amit Jatia, vice-chairman at Westlife.
All eating outlets except five-star hotels now have to pay 5 percent Goods and Services Tax. That's down from 18 percent for air-conditioned restaurants like the burger chain and 12 percent for others earlier. The lower levy comes with a catch. The outlets won't get any credits for taxes paid on inputs. Businesses are usually allowed to set off credits against levies on sale of goods and services to avoid double taxation.
The revision is a “net neutral” for restaurants like the burger chain that buys from organised suppliers, said Jatia. It's the unorganised sector that has been the real beneficiary, he told BloombergQuint in an interview.
The removal of input tax credit has increased costs for Westlife Development by 10-12 percent, he said. Westlife invested around $200-300 million for setting up operations in India and being a supply-chain owner, tax burden is high already, he said.
With the removal of input tax credit, the company's financials have taken a hit, even as the GST on restaurants has declined, said Jatia.
McDonald's reduced prices of products like the Maharaja Mac burger by 25 percent to pass on lower tax, he said. A majority of low-priced best-selling products have seen no rate cut, said Jatia.
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