Starbucks may face fine for ‘profiteering’ after GST rate cut

The anti-profiteering authority is set to fine coffee chain Starbucks for not reducing prices of its products after the Goods and Services Tax rate cut.

The tax authorities had questioned Starbucks about its prices and had issued two sets of letters seeking data after GST was reduced.

Starbucks shared data of its prices and costs in a detailed reply to the National Anti-profiteering Authority (NAA), people aware of the matter said.

Seattle-based Starbucks, the world’s biggest coffee retailer, operates over 100 stores in India through Tata Starbucks, its joint venture with the Tata Group. An email sent to the official spokesperson of Tata Starbucks did not elicit any response.

GST for restaurants, first set at 18%, was reduced to 5% in early 2018, although they could no longer claim input tax credits. This meant taxes paid on raw materials could not be set off against future tax liabilities.

Starbucks had argued that the denial of input tax credits had neutralized the cut in GST and thus its operational costs were not impacted. However, the NAA poked holes in Starbucks’ defense and is close to slapping a fine on the company. The NAA order against Starbucks is expected in the next few weeks, a person aware of the matter said.

However, experts said assessing the impact of GST changes on restaurants is not easy, given the various operational models they adopt and the absence of a specific framework.

According to Abhishek A Rastogi, a partner at law firm Khaitan & Co, it is difficult to calculate which expenses are actually cost and how much benefit an entity has gained from the tax rate cut. In the absence of a methodology to compute antiprofiteering, it becomes tough to figure out the quantum of benefits, he said.

However, a person aware of the developments emphasized that NAA isn’t concerned about this aspect.

“NAA’s concern is whether prices were reduced after the GST rate cut and if the benefits of input tax credit were passed on to customers. Starbucks did not reduce prices,” the person said.

Tax experts said the anti-profiteering section in the GST framework doesn’t deal with reduced input tax credits, which could pose problems for restaurants.

Source:-https://retail.economictimes.indiatimes.com/news/food-entertainment/food-services/starbucks-may-face-fine-for-profiteering-after-gst-rate-cut/68418637