A STUDY ON IMPACT OF VAT ON CONSUMABLE GOODS WITH

SPECIAL REFERENCE TO RESTAURANTS

Submitted

In partial fulfillment for the award of the degree of

BACHELOR OF COMMERCE (HONOURS)

By

K. AMRIN TAJ

REG NO.: 12H0004

Under the guidance of

Ms. HEMALATHA, M.Com, M.Phil, MBA

Assistant Professor, Department of B.COM (HONOURS)

SHRIMATHI DEVKUNVAR NANALAL BHATT VAISHNAV COLLEGE FOR WOMEN

Accredited with ‘A’ grade by NAAC

Chromepet, Chennai-600044

2012-2015

CERTIFICATE

This is to certify that the project “A STUDY ON IMPACT OF VAT ON

CONSUMABLE GOODS WITH SPECIAL REFERENCE TO

RESTAURANTS” submitted by K.AMRIN TAJ in partial fulfillment of the

curriculum of Bachelor of Commerce (Honours) course 2012-2015, under the

guidance of Ms. K. C. HEMALATHA, M.COM., M.PHIL., MBA.,

Assistant Professor, Department of B.COM (HONOURS), Shrimathi

Devkunvar Nanalal Bhatt Vaishnav College for Women, Chromepet, Chennai-

44 is her original work.

Faculty Guide Head of the Department of

B.Com (Honours)

EXTERNAL EXAMINER

DECLARATION

I, K.AMRIN TAJ, a bonafide student of III B.COM HONOURS, Shrimathi

Devkunvar Nanalal Bhatt Vaishnav College for Women, Chromepet, Chennai-

44 would like to declare that the project titled “A STUDY ON IMPACT OF

VAT ON CONSUMABLE GOODS WITH SPECIAL REFERENCE TO

RESTAURANTS” in partial fulfillment of B.COM ( HONOURS ) is my

original work.

PLACE:

DATE: SIGNATURE OF THE STUDENT

ACKNOWLEDGEMENT

I extend my heartfelt thanks to my Principal Dr. Mrs. G. RANI, M.Sc.,

B.Ed., M.Phil, Ph.D., for giving me an opportunity to study in this esteemed

institution.

I would like to express my sincere thanks to the Head of the Department

of B.COM (HONOURS) Mrs. V. Vasantha Kumari, M.Com, M.Phil, Ph.D.,

for ensuring the opportunity and sufficient permissions for the completion of the

work.

I would like to express my sincere thanks to my guide

Ms. K.C.HEMALATHA, M.Com, M.Phil, MBA, Assistant Professor, Department of B.com Honours for guiding me in this project.

I also thank all the members of the department for encouraging, guiding and helping us whenever required.

I also thank my parents for their constant support and motivation at all

times.

I would also thank the Almighty for His blessings throughout my

Endeavour’s.

PLACE:

DATE: SIGNATURE OF THE STUDENT

CONTENTS

CHAPTER NO. TITLE PAGE NO.

1 INTRODUCTION 1-11

2 REVIEW OF LITERATURE 12-15

3 THEORETICAL BACKGROUND 16-34

4 ANALYSIS AND 35-71

INTERPRETATION OF DATA

5 SUMMARY OF FINDINGS AND 72-76

SUGGESTIONS

6 CONCLUSION 77

BIBLIOGRAPHY 78

APPENDIX

QUESTIONNAIRE

LIST OF TABLES

TABLE NO. CONTENT PAGE NO.

4.1 Gender Classification 36

4.2 Age Intervals 38

4.3 Occupation Classification 40

4.4 Level Of Income 42

4.5 Frequency of visits in a month 44

4.6 Type of Restaurants 46

4.7 Factors considered before visiting a restaurant 48

4.8 Modes of Payment 50

4.9 Frequency of visits to food courts in shopping malls 52

4.10 Tax breakage shown in the bill 54

4.11 Kind of items often consumed outside 56

4.12 Frequency level- Tips to waiters 58

4.13 Change in VAT charges among different restaurants 60

4.14 Comparison of the tax rates 62

4.15 Contribution for charity purpose 64

4.16 Frequency level- Packing food parcels 66

4.17 Are tax rates more on food delivered at home? 68

4.18 Difference in VAT rates for online order 70

LIST OF CHARTS

CHART NO. CONTENT PAGE NO.

4.1 Gender Classification 37

4.2 Age Intervals 39

4.3 Occupation Types 41

4.4 Level Of Income 43

4.5 Frequency of visits in a month 45

4.6 Type of Restaurants 47

4.7 Factors considered before visiting a restaurant 49

4.8 Modes of Payment 51

4.9 Frequency of visits to food courts in shopping 53

malls

4.10 Tax breakage shown in the bill 55

4.11 Kind of items often consumed outside 57

4.12 Frequency level- Tips to waiters 59

4.13 Change in VAT charges among different 61

restaurants

4.14 Comparison of the tax rates 63

4.15 Contribution for charity purpose 65

4.16 Frequency level- Packing food parcels 67

4.17 Are tax rates more on food delivered at home? 69

4.18 Difference in VAT rates for online order 71

CHAPTERS

CHAPTER 1

INTRODUCTION

1.1 INDIAN TAX SYSTEM:

A tax may be defined as a "pecuniary burden laid upon individuals or property owners to

support the government, a payment exacted by legislative authority”. Tax policies play an

important role on the economy through their impact on both efficiency and equity. A good tax

system should keep in view issues of income distribution and, at the same time, also endeavor to

generate tax revenue to support government expenditure on public services and infrastructure

development. For a developing economy like India it is desirable to become more competitive

and efficient in its resource usage. Apart from various other policy instruments, India must

pursue taxation policies that would maximize its economic efficiency and minimize distortions

and impediments to efficient allocation of resources, specialization, capital formation and

international trade. The taxation system in the Republic of India is quite well structured. The

Republic of India has got a tax structure, which is quite simplified as well as developed.

The taxation system in India is featured with a 3 tier federal structure that comprises off

the following:

I. The Union Government

II. The State Governments

III. The Rural and Urban Local Bodies or Municipal Jurisdictions

According to the provisions of the Constitution of India, these three tiers are empowered

with the imposition of the different duties and taxes, which are prevalent in the country. The

Central Government is mainly responsible for levying Income Tax.

1

However, they do not impose taxes on the income that is earned from agriculture. The

agricultural income tax can be imposed by the government of a respective state.

The other taxes that are levied by the Indian Government are mentioned below:

a) CENTRAL EXCISE DUTY

b) CUSTOMS DUTY

c) SALES TAX

d) SERVICE TAX

Over a period of 10 years to 15 years, the tax system in the nation has undergone some

significant changes. The entire system has been tremendously reformed. The slabs for the

imposition of taxes have been modified. Besides that, the rates at which any particular tax is

being levied have been restructured as well as the various laws that govern the levying of taxes

were being simplified. All of these reformations have resulted in the following:

a) Better compliance

b) Better enforcement

c) Easy payment of the levied taxes

Goods and Services Tax is a broad based and a single comprehensive tax levied on

goods and services consumed in an economy. GST is levied at every stage of the production-

distribution chain with applicable set offs in respect of the tax remitted at previous stages. It is

basically a tax on final consumption. In simple terms, GST may be defined as “a tax on goods

and services, which can be levied at each point of sale or provision of service, in which at the

time of sale of goods or providing the services the seller or service provider may claim the input

credit of tax which he has paid while purchasing the goods or procuring the services”.

2

Goods and Services tax was replaced as the Value Added Tax (VAT) which was first

devised by a German economist during the 18th century.

He envisioned a sales tax on goods that did not affect the cost of manufacture or

distribution but was collected on the final price charged to the consumer. Thus it did not matter

how many transactions the goods went through, the tax was always a fixed percentage of the

final price. VAT is levied on the difference between the sale price of the goods produced or the

services rendered, and the cost thereof that is, the difference between the output and the input.

Personal end-consumers of products and services cannot recover VAT on purchases, but

businesses can recover VAT on the materials and services that they buy to make further supplies

or services directly or indirectly sold to end-users.

In India's prevalent sales tax structure, there have been problems of double taxation of

commodities and multiplicity of taxes, resulting in a cascading tax burden. For instance, in this

structure, before a commodity is produced, inputs are first taxed, and then after the commodity is

produced with input tax load, output is taxed again. This causes an unfair double taxation with

cascading effects. Hence, the VAT has been introduced to replace such sales tax structure.

Moreover, it seeks to phase out the Central Sales Tax (CST) and several efforts are being made

in this regard.

3

1.2 HISTORY OF VAT:

The idea of Value added taxation (hereinafter referred to as “VAT”) traces back to the

writing of Von Siemens a German businessman in the 1920’s. However, not until 1948, the first

value added tax was applied in France. At the beginning, France applied the GNP based VAT

covering up to the manufacturing level and subsequently replaced with a consumption VAT in

1954.

In India, states have exclusive domain to legislate with respect to value added taxation.

After a broad consensus among the members of the Empowered Committee of the Finance

Ministers of the 28 States of India, the April 1, 2003 budget speech of the Finance Minister of

India, Mr. Jaswant Singh, announced implementation of Value Added Tax (VAT) all over the

country. But many states subsequently dithered due to intense lobbying by the trader community

of the respective states. At present, though 16 states of the Union of India have agreed to

introduce VAT, the remaining 12 states have not even passed the necessary legislation for

introduction of VAT replacing the local laws governing sales tax.

Following three decisions were taken in the Meeting towards reforms of State’ tax

structure:-

a) Introduction of uniform floor rates of sales tax for the States and Union territories for

ending the unhealthy “rate war”.

b) Discontinuation of sales-tax based incentive schemes, and

c) Introduction of VAT on the basis of progress relating to (a) and (b) above

4

The Empowered Committee of the Finance Minister of the States namely West Bengal,

Maharashtra, Gujarat, Punjab, Madhya Pradesh, Karnataka, Uttar Pradesh, Delhi and Meghalaya

was constituted on 17.07.2000 to monitor the progress of the above decisions. The Finance

Minister of West Bengal was made the Convener. On the basis of repeated interactions with the

States, the Empowered Committee has been able to achieve more than 98% progress in the

implementation of the decisions relating to (a) and (b) above. As a result of this progress, it has

now been decided that VAT will be implemented in all the States from April 1, 2003 in place of

State Sales Tax Acts. The proposed VAT structure has been evolved on the basis of a consensus

among the States. The basic features of VAT will therefore be same throughout the country.

There has been opposition to VAT on several grounds;

Firstly, the traders lobby opposed to the introduction of VAT. The traders lobby cited the

possibility of harassment by the tax inspectors as the outward reason for their opposition.

Under the VAT system, records need to be maintained which according to some trade

lobbyists, was very cumbersome and lead to harassment. Further, the trade lobbyists

claimed that VAT is good for manufacturers, but bad for traders. The trader’s lobbyists

contended that the extensive procedural formalities that were to be followed by traders

under the new regime might result in increased transaction costs. However the real reason

was different. There was less scope for tax evasion under VAT and there would be

stricter compliance. The traders lobby wanted to retain the scope for tax evasion as it

existed then under the sales tax. This was the real underlying reason for their protest. To

exempt small traders from VAT the minimum turnover for VAT was Rs.5, 00,000. But

the traders lobby argued that this limit was too low.

5

Secondly, some businessmen expressed apprehensions that introduction of VAT would

lead to inflation.

Thirdly, some states in India expressed reluctance to introduce VAT because it would

reduce the revenue. The Central Government acknowledged the possibility of reduction

in revenue following substitution of sales tax by VAT and offered to compensate the

states for the revenue reduction for three years. They believed that though initially there

might be a fall in the revenue, after a period of time the revenue would be buoyant as the

compliance would improve.

Further, some politicians are opposed to VAT because it would be a negation of the

federal principle as it would concentrate more powers at the Central Government and also

because it is being introduced at the behest of the World Trade Organization (“WTO“).

1.3 VAT IMPOSITIONS IN DIFFERENT STATES:

Value added tax is relatively a new concept in our country and it was practically

introduced in the year 2005 in large no of states of the country though initially it was introduced

but taken back in mid 90’s in the state of Maharashtra. Further Haryana was the first state to

introduce it successfully in 2003.

6

The VAT introduction schedule in India can be seen as under:

S.NO STATES DATE OF NUMBER

IMPOSITION OF

STATES

1. Haryana 01-Apr-2003 1

2. Arunachal Pradesh, west Bengal, 01-Apr-2005 20

Kerala, Karnataka, Orissa, NCT,

Delhi, Tripura, Bihar, Andhra

Pradesh, Sikkim, Punjab, Goa,

Mizoram, Nagaland, Jammu &

Kashmir, Manipur, Maharashtra,

Himachal Pradesh, Assam and

Meghalaya.

3. Uttaranchal 01-Oct-2005 1

4. Rajasthan, Gujarat, Madhya Pradesh, 01-Apr-2006 5

Chhattisgarh and Jharkhand.

5. Tamilnadu 01-Jan-2007 1

6. Uttar Pradesh 01-Jan-2008 1

7

1.4 STATEMENT OF PROBLEM:

VAT and other charges imposed by restaurants in the food bill are quite high. Hiding

behind loopholes in the food taxation system and taking advantage of the ignorance of customers,

restaurateurs are conveniently swiping more money from your wallet. The methods used are

varied. They range from bloating the basic bill amount by adding service charge and then levying

taxes on it, to intertwining national and state tax codes to result in a heavier bill.

1.5 IMPORTANCE OF THE STUDY:

The Indian consumer is more burdened with financial crunch and price inflation. The

poor are the most sufferers and their purchasing power is low. They have to earn hard to live a

standard life, at ones blood and sweat. Concept of small and working family has emerged in the

cities, towns and even in villages where both the partners are working to support themselves and

their family. In the rural areas, the men move out to cities in search for employment and the

females look after the activities of the household. In such a situation the imposition of heavy tax

is feasible or the tax rates should be subsidized to avoid criminal activities such as murder, theft,

fraud, embezzlement in the society. It’s not only the consumer who are hit hard by the value

added tax charges but the intermediaries involved in the chain, from producer to retailers have to

pay taxes to the government and meet the legal and accounting standards to present a fair picture

of their businesses.

8

1.6 SCOPE OF THE STUDY:

The research would be an eye opener for lot of consumers who are unaware of the

various charges accumulating their food bill. Further they would become aware of the rules &

regulations laid down by the government for VAT. On the other hand, the findings enables to

study that “Do value added tax promote prosperity and well being for the common man?”

1.7 OBJECTIVES OF THE STUDY:

1. To study about the VAT system followed in Restaurants.

2. To analyze the influencing factor of the consumption pattern towards VAT in the

study area.

3. To find out whether VAT is a boon or bane to a layman in the study unit.

4. To analyze the benefits to the Government towards VAT.

5. To offer viable suggestion and conclusion for further development of the study based

on the findings of the study.

1.8 RESEARCH METHODOLOGY:

The purpose of the research methodology is to describe the various procedure used in the

research. Research methodology overall includes design, data collection method and analysis

procedure which are used to explore information from the research problem. It should be noted

that a research is unique to a research design. It is a blue print for research study, which guides

research in collecting and analyzing the data.

9

DESCRIPTIVE RESEARCH:

Descriptive research is used to obtain information concerning the current status of the

phenomena to describe “what exists” with respect to variables or conditions in a situation.

In this study, the descriptive research study is used.

DATA COLLECTION METHOD:

The success of any project or market depends heavily on the data collection and analysis.

It is necessary that the data collected is a reliable data in order to achieve the research objective.

All data sources can be classified into two:

1. PRIMARY DATA:

Primary data is the data which are fresh and collected for the first time, and are original

in character. The researcher used Questionnaire as the primary data source in the study.

2. SECONDARY DATA:

Secondary data are those data, which have been already collected or published for the

purpose other than specific research need at hand. In this study, the researcher used

journals, books, articles, published journals, reports of the government and websites as

secondary data.

SAMPLE SIZE:

The sample size of the respondents of this study was 50.

10

SAMPLE TECHIQUE:

The sampling technique used in this study is convenient sampling.

STATISTICAL TOOLS USED:

The data, thus collected have been properly classified tabulated and interpreted to have a

clear-cut outlook. The statistical tools like simple percentage analysis and charts were used for

the study.

1.9 LIMITATION OF STUDY:

1. The size of sample was small in relation to Chennai zone.

2. The duration for the study is very less, so the results may not be applicable for a long

period of time.

3. Data could not be collected from the restaurants on their VAT generation and policies

attached to it.

1.10 CHAPTERIZATION SCHEMES:

CHAPTER 1: This Chapter dealt with the introduction, objectives, scope, research

methodology, analytical tools and limitations of the study.

CHAPTER 2: This Chapter dealt with the review of literature

CHAPTER 3: This Chapter dealt with the theoretical background of VAT system in India.

CHAPTER 4: This Chapter dealt with the data analysis and interpretations of the study. It

includes tables and charts.

CHAPTER 5: This Chapter dealt with the summary of findings & suggestions.

CHAPTER 6: This Chapter dealt with the conclusion of the study.

11

CHAPTER 2

REVIEW OF LITERATURE

2.1. “THE VARIOUS PROCEDURAL REFORMS UNDER VAT IN INDIA WITH

SPECIAL REFERENCE TO PUNJAB VALUE ADDED TAX ACT

2005” KAPOOR AND DHALIWAL, 2009

It studied the working of value added tax, incidence of tax, input tax credit mechanism,

payment of VAT, filing of returns and refund procedure under VAT. The paper attempted to

study and compare the present state value added tax and earlier state sale tax on the basis of

incidence of tax and other procedural requirements. Under earlier sales tax structure, before

commodity was produced, inputs were first taxed and then taxed again with input tax load after

commodity was produced thus causing an unfair double taxation with cascading effects. On the

other hand, under the VAT, set-off is given for input tax as well as tax paid on previous

purchases. Further, there was multiplicity of taxes in several states like turnover tax, surcharge

on sales tax, additional surcharge etc. But with introduction of VAT, these other taxes have been

abolished resulting in overall rationalization of tax burden. Moreover, VAT has replaced the

earlier system of inspection by a system of built-in self-assessment by the dealers. The study

concluded that the present state value added tax system of taxation is more simple and

transparent as compared to the earlier state sale tax system of taxation.

12

2.2. “THE IMPACT OF VALUE – ADDED TAX ON POVERTY REDUCTION WITH

THE HELP OF CONCENTRATION CURVE, LORENZ CURVE AND

CONSUMPTION DOMINANCE CURVE FROM THE DATA OF SIX MAJOR

STATES”

ROY POVIOMI, AJITAVA RAYCHAUDHUR AND SUDIP KUMAR SHIN, 2010

They try their efforts to understand the nature of marginal tax reform undertaken by

different state governments in India, when they switched over to VAT from sales tax regime.

The paper has specifically addressed this question with six important states in India, namely

Bihar, Gujarat, Karnataka, Madhya Pradesh, Maharashtra and west Bengal. This study finds that

the design of the VAT in these states are generally Pro-Poor in are taxed less which are

consumed more by people under certain poverty line. In Bihar, 31 Gujarat and Madhya Pradesh

the actual change in tax is found to contradict the desired direction of tax change. The poverty

lines differ from commodity to commodity, but pair wise comparison of taxes with help of

normalized consumption dominance curve give an unambiguous answer regarding who benefits

from increase and decrease in tax rate if the government wants to maintain its revenue target.

This study fulfils a gap in the literature on taxes like VAT in India, but the analysis is in partial

equilibrium framework. In many cases revenue neutrality is maintained by increase in taxes on

products which are finished products but are used by industries and not consumed. Thus many of

the tax reductions are not pair-wise truly comparable for revenue neutrality. This study done here

give some indication about the design of VAT in India.

13

2.3. “THE IMPORTANCE OF VALUE-ADDED TAX IN THE INDIAN SOCIETY”

JAYA KUMAR DR. A, 2011

The study explains the impact of VAT and the future prospect for product and services

industry in India. Since, India is a developing country, the main source for revenue is generated

through tax levied on the individual on the purchases of goods or services. The government-

imposes taxes and duty charges on the fellow People for fulfilling the infrastructural,

technological, entrepreneurial demand of the country.

2.4. “INDIA’S EXPERIENCES WITH STATE VAT”

SEBASTIAN. JOSE, 2011

He traces India’s road to VAT, in this context he says that VAT system is far from the

ideal because the tax systems at central and state levels are not integrated. Thus excise levied by

the central government at the manufacturing stage are not deductible for the purposes of state

VAT. The destination principle, which is a basic principle, of an ideal VAT system is also

compromised by the imposition of CST on interstate transactions of goods, and also instead of a

single rate , the state VAT system have three rate categories, VAT also does not cover all goods.

He also analyses the impact on state tax revenue, tax administration and compliances. In this

context he says that VAT has been revenue riser for the Indian states. Not only the broadening of

the tax base, but also other factors, such as increased administrative efficiency resulting from the

use of information and communication technology (ICT) and the self-policing feature of VAT

seem to have contributed to the higher efficiency of VAT.

14

2.5. “EVALUATION OF VALUE ADDED TAX”,

TRIPATHI, 2011

The researcher suggests that VAT would change the nature of trade in the coming years, but the

medium level of trade would face problems. Similarly, small retail dealers would be required to

maintain more accounts or pay composition money which cannot be collected from the

customers. However, Value Added Tax in its original form is yet to be introduced in India, at

Central or State level. After the negative and positive impact on the Indian consumers, Value

Added Tax has been identified as the real goal maker by the Indian government in the coming

years to foster growth and prosperity in the country. The change in the standard of livings has

increased the purchasing power of the high class society but the medium and the poor class

society has to work hard in order to achieve their living and meet extravagances.

15

CHAPTER 3

THEORITICAL BACKGROUND OF VAT SYSTEM

3.1 FEATURES OF STATE VAT:

1. NATURE:

It is a form of sales tax only and is charged at each stage of sales on the value

added to the goods.

2. TAX BASE FOR VAT:

a. Tax has to be paid by a registered dealer on the value addition of the goods when

sold by him.

b. VAT will be calculated by deducting Tax credit from Tax collected in the

payment period.

3. EXEMPTED GOODS:

There will be a short list of exempted goods which will be common in all the

States.

4. COMMODITY COVERAGE:

a) NON-APPLICABILITY OF VAT:

A few items like Petrol, Diesel, Aviation Turbine Fuel and Natural Gas will

be taxed as per present arrangement of uniform floor rate.

b) GOODS OTHER THAN ABOVE:

All other goods including declared goods and A.E.D. items (Sugar, Tobacco,

Textiles) will be subjected to VAT.

16

5. RATES OF TAX:

a. There will be only two basic rates of tax in the VAT system.

b. Some essential commodities, declared goods, capital goods and basic inputs will

be taxable @ 4%. The list of the goods taxable @ 4% will be common for all the

States.

c. All the other commodities will have a uniform floor rate of 10% and the State

may fix a revenue neutral rate (RNR) of 10% or above up to 12.5%.

d. There will be composition of lump-sum in lieu of tax in respect of certain

commodities such as lottery tickets and dealers such as works contractor.

6. THERE WILL BE TWO EXCEPTIONS:

a) Gold, Silver, precious and semi-precious stones will have a VAT rate of 1%.

b) Liquor will have a higher VAT rate with a floor of 20%.

7. SPECIAL ADDITION TAX (SAT):

a. States may impose special additional tax (SAT) on a few commodities to keep

the ‘RNR’ low.

b. SAT will be levied only at the first point of sale.

c. SAT will not be eligible for Tax credit.

8. TAX CREDIT:

Credit will be given within the same period for entire tax paid within the State on

purchase of goods both for intra-State and inter-State sales, irrespective of when those

will be utilized or sold.

17

9. METHOD OF SET-OFF:

The credit which thus accumulates in any period will be utilized to deduct from

the tax collected by the dealer in that period under the VAT Act.

10. CARRYING OVER OF TAX CREDIT:

If the tax credit exceeds the tax collected in a period on sale within the State, the

excess credit will be carried over to the next period.

11. TAX CREDIT ON CAPITAL GOODS:

Tax paid on capital goods will be eligible for tax credit, but the same may be

adjusted over a maximum period of 36 months.

12. TREATMENT OF EXPORTS:

For all exports made out of the country, tax paid within the State will be refunded

in full.

13. STOCK TRANSFER OUT OF THE STATE:

For stock transfer the input tax paid in excess of 4 % will be eligible for tax credit.

14. INPUT PROCURED FROM OTHER STATES:

Tax paid on inputs procured from other States through stock transfer or inter-State

sale will not be eligible for credit.

18

3.2 VAT TERMINOLOGY:

a. OUTPUT VAT:

Amount received by a seller as a percentage of the gross sale price of goods or

services.

b. INPUT VAT:

Amount paid by a buyer as a percentage of the gross purchase price for goods or

services used in production.

c. ZERO RATED:

Transactions in which the seller collects no output tax and the corresponding input

tax is fully refundable. Exports are zero rated.

d. EXEMPT:

Transactions in which the seller collects no output tax but the corresponding input

tax is non-refundable and absorbed by the seller. Financial services are commonly

exempt.

e. INPUT TAX CREDIT:

Input tax credit is the portion of input tax of a registered dealer under the Act

which is allowed as rebate or set off from the total tax liability corresponding to

the sale of goods or the taxable goods manufactured there from within the State or

in the course of inter-State-trade and commerce

f. CAPITAL GOODS:

Capital goods means plant, machinery and equipment used for the purpose of

manufacturing or processing of goods in the State for sale, where the purchase

thereof has been capitalized and includes purchase of right to use such goods,

19

whether such purchase is capitalized or not. This term does not include all the

capital assets of a dealer such as car, furniture and office equipments etc.

3.3 GENERAL REQUIREMENTS FOR VAT SYSTEM:

1. Compulsory issue of tax invoice and retail invoice:

Tax invoice is issued to a dealer/consumer who has to take input VAT Credit whereas

retail invoice is meant for interstate sales or sale to a consumer who does not require

input credit of VAT.

2. Registration:

There is a compulsory registration of the dealer if the aggregate turnover exceeds a

certain specified limit.

3. Composition scheme:

A small dealer whose turnover does not exceed a specified limit (say in Delhi Rs. 50

lakhs) can opt for composition scheme where he shall have to pay tax himself at a small

percentage of gross turnover and in this case buyer of goods with not get input VAT

Credit.

4. Tax payer identification Number (TIN):

There will be a taxpayer’s identification number of 11 digits numerical which will be

unique to each dealer.

5. Simplified returns of VAT are to be filed monthly or quarterly as specified by each state.

6. Self assessment by dealers.

7. Audit under VAT has been made compulsory by various States.

20

8. No requirement of any declaration form as bill will be raised for each sale and VAT shall

be levied.

9. Comprehensive coverage as only few commodities has been exempted from VAT.

3.4 METHOD OF COMPUTATION OF VAT:

VAT is nothing but a form of sales tax only and is charged at each stage of sale on the

value added to the goods. “Value Added” is the difference between sale and purchase of a

business. A straight forward way to compute the base of a VAT for a given period, say a quarter,

is, in the case of a manufacturer, to deduct the total cost of the inputs used in production from the

amount for which the manufactured goods are sold.VAT is computed by adopting three

alternative methods. These are

(i) Addition method

(ii) Subtraction method

(iii) Tax Credit or Invoice method.

In Addition method, value added could be determined by summation of all the elements

of value added i.e. wages, profits, rent and interest. The subtraction method estimates value-

added by taking the difference between the value of outputs and inputs. Under the Tax Credit

Method, the tax on inputs is deducted from the tax on the sales to arrive at the VAT payable by

the dealer.

VAT payable = Total tax charged on (–)

the outputs or sales

Total tax paid on the suppliers on inputs or purchases

21

Tax Credit or Invoice Method has been adopted universally because of the inherent

advantages in the credit method of calculating tax liability. The other methods namely addition

method and subtraction method are not workable in the case of a manufacturer when the rate of

tax is different in respect of inputs and outputs.

EXAMPLE OF TAX CREDIT METHOD:

Assuming tax-rate of 10%

a) Input procured within the state in a month Rs 1, 00, 000/-

b) Output sold in the month Rs 2, 00, 000/-

c) Input tax paid @ 10% on (a) Rs 10, 000/-

d) Tax collected @ 10% on (b) Rs 20, 000/-

e) VAT payable during the month Rs 10, 000/-

[(d) - (c)]: Rs 20, 000- Rs 10, 000

3.5 ADVANTAGES AND ADOPTION OF TAX CREDIT METHOD:

1. It makes cross-checking of tax paid at earlier stage, more amenable, as dealers are

required to state the amount of tax in invoices.

2. Tax burden being dependent upon the tax rate at the final stage, dealers at intermediate

stages do not have any incentive to seek treatment in tax rate.

3. Under the invoice method exports can easily be relieved of domestic indirect taxes

through zero rating of exports.

22

3.6 VAT IN RESTAURANTS:

When you dine on a restaurant the following charges and taxes are normally levied on your

food bill:

a. SERVICE CHARGE:

This is a charge levied by the Restaurant owners as payment for the services rendered like

serving food etc. The charge is not levied by the Government and is collected by Restaurant

owners themselves. This charge is optional on the part of the restaurant and they are free to

charge any amount as service charge after making proper disclosures in the Menu card. In other

words, Service charge is the mandatory tip to be paid, if proper disclosures for the same are

shown in the Menu card.

The levy of service tax on services provided by restaurants, in relation to serving of food

and beverages within the said premises, was imposed for the first time in May 2011 and was

restricted to just air-conditioned restaurants serving alcohol at those time. With the introduction

of the negative list regime in July 2012, the ambit of service tax was extended beyond restaurants

to include even eating joints and messes. There was no distinction made while levying service

tax between premium restaurants and eating joints with self-service. The service tax net was then

further widened with effect from April 2013 to include all air-conditioned restaurants, even if

these did not possess a license to serve alcohol. Service tax is now applicable at 40% of the total

invoice value excluding VAT. The resultant effective rate of service tax due to such abatement is

4.944% of the total invoice or bill amount.

23

b. SERVICE TAX:

Service tax is the tax levied by the Government on the services rendered by the

restaurants. Service tax is same in all states. The service tax is 12.36 %. This service tax should

be on the 40% of the bill.

Service tax should be 40% * 12.36% = 4.94 %

The charged for the Food served in Restaurants is a composite charge for the food as well

as for the services. As it is a composite charge, Service tax cannot be levied on the whole amount.

Bifurcation of the Total bill into 2 parts i.e. Value of Goods sold and Value of services provided

is very difficult. Therefore, in case of any composite charge, the Government usually announces

an abatement scheme wherein taxes are not levied on the total amount but only on a certain

portion of the total amount.

In order to ensure transparency and standardization in the manner of determination of the

value of such service provided in a restaurant as Outdoor catering, Rule 2C was inserted in the

Service tax (Determination of Values). As per this rule, abatement has been allowed for the levy

of service tax on the food served in Restaurants, which says that Service tax should be charged

only on 40% of the Food bill (inclusive of service charge) and not on the total bill.

24

EXAMPLE OF SERVICE TAX COMPUTATION:

For purpose of simplification, VAT has been presumed at 14.50% on the total food bill.

Total Food bill Rs. 1, 000

Service charges Rs. 100

Total Rs. 1, 100

VAT @ 14.50% Rs. 159.50

Total Amount before Service tax Rs. 1, 259.50

Service Tax rate 12.36%

Proportion on which service tax is 40%

to be charged

Net Effective rate of Service Tax 4.94%

Amount on which service tax is Rs. 1, 100

to be paid (Rs. 1000 + Rs. 100)

Total Amt of Service tax to be paid Rs. 54.34

(4.94% of Rs.1100)

Total Amount Payable by Customer Rs. 1, 313.84

25

c. VALUE ADDED TAX (VAT):

Value added tax is levied on sale of any item. As food is being sold in a restaurant, VAT

is liable to be paid on such sale. VAT is levied by the State government and is at the sole

discretion of the State Govt. Different states prescribe different rates of tax. Moreover, even in

the same state, different rates of VAT have been prescribed for different items. VAT rates on

food and beverages usually range from 5% to 20% varying from state to state. As per the Service

tax rules, Service tax on food served in Restaurants is chargeable on only 40% of the bill as

they’ve estimated that out of the Total Food bill- 40% is for the services provided and 60% is for

the items sold. The VAT laws specifically state that VAT rate id to be applied on the Total Food

Bill (Inclusive of service charge). Accordingly, this adds to the various heads under which tax is

being charged in a bill. Some restaurants club the price of food items and beverages and charge

VAT at a flat rate on the consolidated amount, which could be at a rate higher than that

applicable on individual items.

26

3.7 VAT SLAB RATE FOR CONSUMABLE GOODS IN TAMILNADU

FIRST SCHEDULE- PART B

SUB-SECTION (2) OF SECTION

3 Rate of tax- 4%

S.NO DESCRIPTION OF GOODS

1. Areca nut, betel nut, scented nut, seeval whether roasted or scented and areca nut

powder

2. Bakery products including bun, rusks, biscuits and cakes sold with or without a brand

name

3. Beedi leaves

4. Coffee beans and seeds, cocoa pod and beans and chicory

5. Cottage cheese

6. Drugs and medicines including vaccines, syringes and dressings, medicated ointments

produced under drugs license, light liquid paraffin of IP grade

7. Foods and food preparations and mixes including instant foods, coconut milk powder,

pickles, sweets, cheese, confectionery, chocolates, toffees and savouries like chips and

Popcorn sold without a brand name other than those specified in the Fourth Schedule.

8. Fried and roasted grams, peas and peas dhal, chillies, corriander, turmeric, shikakai,

shikakai powder, including jaggery powder and Nattu chakkarai other than those

specified in the Fourth Schedule

9. Fried groundnut kernel

10. (i) Honey, (ii) Bees wax

11. Ice

12. Ice creams sold without brand name

13. Husk and bran of all cereals, pulses and grams (other than those specified in the Fourth

Schedule)

14. (i) Lemon grass oil, (ii) Laurel oil, (iii) Ginger grass oil

15. Maize products

27

16. Milk food and milk products (including Flavoured milk, skimmed milk powder, Tinned

(Bottled or packed) Baby milk food, paneer, milk powder and UHT milk.

17. Non-alcoholic beverages sold without a brand name

18. Oats

19. Oil seeds other than those specified in Section 14 of Central Sales Tax Act ,1956

(Central Act 74 of 1956)

20. Pizza bread

21. Processed fruit and vegetables including fruit jam, jelly, pickle, fruit squash, paste, fruit

drink and fruit juice (whether in sealed containers or otherwise), other than those

specified in the Fourth Schedule

22. Processed meat, poultry and fish

23. Pulses and grams other than those specified elsewhere in the Schedule

24. Raw Cashew, Cashew nuts, fresh or dried, whether or not shelled or peeled

25. Ready to use flour pastes

26. Tamarind seed and powder

27. Tanning materials of vegetable origin

28. Tapioca flour

29. Tea

30. Vanaspati (Hydrogenated Vegetable Oil)

31. Vegetable oil and oilcake other than those specified in the Fourth Schedule

32. Vegetable vathal of all kinds sold under a brand name other than those specified in the

Fourth Schedule

33. Wet dates

34. Wheat

28

3.8 CONSUMABLE GOODS EXEMPTED FROM TAX

FOURTH SCHEDULE - PART B

SECTION 15

S.NO DESCRIPTION OF GOODS

1. Appalam, pappad, vadam and vathal

2. Bread (branded or otherwise)

3. Chillies, Tamarind, Coriander, Turmeric, Asafetida (Hing), Shikakai and Shikakai

powder, jaggery and gur including jaggery powder and nattu chakkarai sold by any

dealer whose total turnover in respect of those item does not exceed rupees three

hundred crores in a year

4. Coarse grains, paddy and rice including broken rice

5. Curd, lassi, butter milk, separated milk and butter without any brand name

6. Fresh milk, pasteurized milk and directly reconstituted milk

7. Fresh vegetables including potatoes, tapioca and fresh fruits

8. Garlic and ginger

9. Masala powder or paste whether or not with oil or additives, sold without a brand name

10. Meat, fish including dry fish, prawn and other aquatic products (other than branded,

processed and packed items ) , eggs, poultry and livestock (other than race horses)

11. a) Neem oil cake

b)Packed pickles weighing below 50 grams

c) Wheat sold through Public Distribution System

12. Products of millets ( flour, brokens and bran of cholam, cumbu, ragi, thinai, varagu,

samai, kudiraivalai and Milo)

13. Puffed rice, flattened or beaten rice, parched rice, parched paddy or rice coated with

sugar or gur, rice flour and de-oiled rice bran

14. Sale of following vegetable oils by any dealer whose total turnover on sale of those

goods does not exceed rupees three hundred crores per annum.

29

1) Coconut oil

2) Gingelly oil

3) Groundnut oil

4) Sunflower oil

5) Cotton seed oil

6) Rice bran oil

8) Refined Palm oil

15. Sale of oil cakes including de-oiled cakes by any dealer whose total turnover on the

sales of these goods does not exceed rupees three hundred crores per year

16. Sale of peas and peas dhal including broken, husk and dust thereof, by any dealer whose

total turnover on their sales of these goods does not exceed rupees three hundred crores

per year

17. Sale of the following pulses and grams including broken, splits, flour, husk and dust

thereof and parched and fried grams made from them by any dealer whose turnover in

respect of the goods in each item does not exceed rupees three hundred crores in a year.

1) gram or gulab gram

2) Tur or arhur

3) Moong or green gram

4) Masur or lentil

5) Urad or black gram

6) Moth

7) Lekh or khesari

18. Salt (branded or otherwise) including iodized or vitaminised salt for human

consumption other than salt for industrial use

19. Tender coconut

30

3.9 BENEFITS TO THE STAKEHOLDERS:

VAT being a broad based tax levied at multiple stages is generally perceived as an

explicit replacement of State sales tax for raising additional revenue for the Government. The

purpose of a tax system is to bring in revenues to the Government. Tax revenues can be raised in

many ways.

However, the main characteristic of good tax system should be –

1. The tax system should be fair or equitable;

2. It should cause the least possible harmful effects to the economy and to the extent

possible. It should promote growth to the economy.

3. It should be simple both for its compliance by the payer and for its administration

by the Government.

4. It should be income elastic.

VAT is also expected to be more effective and efficient for every person including

Government, manufactures, traders and consumers and hold the following advantages:

1. EASY TO ADMINISTER AND TRANSPARENT:

This system of charging tax is easy to administer because of its simplicity. It also

reduces the cost of compliance by the dealers and is transparent, as tax is to be charged in

every bill and there will be no local statutory forms.

31

2. LESS LITIGATION:

There will be no litigation with respect to allow ability of items, as under VAT no

items will be specified in the registration certificate of the dealer. The dealer will be

allowed to purchase any of the items of his choice in which he intends to deal. He will

also be allowed to purchase any item he requires as raw material for the purpose of

manufacturing or for packing.

3. TAX CREDIT ON PURCHASE OF CAPITAL GOODS:

The dealer will be allowed to purchase capital goods for manufacturing after

paying sale tax and will be entitled to get set off sales tax paid on such purchases from his

sales tax liability, which will arise on the sales made by him.

4. ABOLITION OF STATUTORY FORMS:

There are no forms under VAT. Therefore, all problems related to forms

automatically get resolved.

5. SELF- ASSESSMENT:

Dealers are not required to appear before the Assessing Authority for their yearly

assessments, as under VAT there is provision for self assessment. All the cases will be

accepted by the department as correct and only a few will be selected for audit as is being

done by Income Tax Department and Excise Department at present.

32

6. DETTERENT AGAINST TAX AVOIDANCE:

It will act as deterrent against tax avoidance. Under the present system, tax is

charged either on first point basis or at last point basis hence the incentive to evade tax is

high because the dealer saves the whole amount of tax due on such transaction, whereas

under VAT the incentive to evade tax is low because the dealer saves only a part of tax

i.e. (tax amount which he is liable to pay less the amount of tax he has already paid on his

purchases).

7. NO CASCADING EFFECT:

It does not have a cascading (tax on tax) effect due to system of deduction or

credit mechanism. Since VAT does away with cascading, it avoids distorting business

decisions; the need for vertical integration is dictated only by the market forces or

technical considerations and not by the tax structure.

8. EFFECTIVE AUDIT AND ENFORCEMENT STRATEGIES:

The input credit method by generating a trail of invoices is argued to be system

that encourages better compliance since the purchaser seeks an invoice to get input tax

credit. Further, this trail of invoices supports effective audit and enforcement strategies.

9. MINIMUM EXEMPTIONS:

The system will be more effective because of minimum exemptions.

33

10. REMOVAL OF ANOMALY OF FIRST POINT TAXATION:

VAT eliminates the limitations of single point tax either at first point or last point.

In the case of last point goods, the temptation to evade tax is high. Firstly, the quantum of

tax at one point is high. Secondly, as the exemption is available against statutory forms,

possibility of misuse of forms cannot be ruled out. Similarly, under first point tax system,

tax avoidance by way of selling the goods at first pint to their sister concerns at lower

rates and thereafter increasing the price of the goods because subsequent sales being

exempt as tax paid. This anomaly is also being taken care or under VAT, without

introducing cascading.

Since the dealer gets a set off for taxes paid at the earlier stages these are not treated as

part of costs and this is expected to reduce that component of cost as well as the associated

financing requirement. Further, the problem of enhanced cascading via the markup rule too is

also ruled out under the system.

34

CHAPTER 4

DATA ANALYSIS AND INTERPRETATION

ANALYSIS:

The analysis involves using statistical techniques to order data with the objective of

obtaining of obtaining answers to research questions. Analysis can be viewed as the ordering,

breaking down into parts, and the manipulation of data to obtain answers to the research question.

Analysis of data can be in 4 modes.

a) Significant tables

b) Careful examination of statement of problems, earlier analysis and original

records of data.

c) Think about the problem in layman’s term or to discuss about the problem with

others.

d) Attach that with statistical calculations.

PERCENTAGE ANALYSIS:

It refers to the specific kinds of ratio percentages used in making comparison between

two or more variables of data. It is used to find out the percentage of respondents from a sample

of 50 individuals.

Percentage analysis = No. of respondents ÷ Total no. of respondents × 100

35

TABLE NO 4.1

GENDER CLASSIFICATION

GENDER NO. OF RESPONDENTS PERCENTAGE (%)

MALE 25 50

FEMALE 25 50

TOTAL 50 100

Source: Primary data

INFERENCE:

From the table it is understood that both the genders equally visit restaurants to enjoy the

food

36

CHART NO 4. 1

GENDER CLASSIFICATION

GENDER

50% 50%

Male

Female

37

TABLE NO 4.2

AGE CLASSIFICATION

AGE INTERVALS NO.OF RESPONDENTS PERCENTAGE

BELOW 20 14 28 %

21-30 33 66 %

31-40 1 2 %

ABOVE 40 2 4 %

TOTAL 50 100%

Source: Primary data

INFERENCE:

From the table it is clear that most of the respondents are people of age group 21-30 and

below 20. This may be because lot of young age groups likes to hang out with their friends to

restaurants.

38

CHART NO 4.2

AGE CLASSIFICATION

AGE

80% 66%

60%

40% 28%

20%

0% 2% 4%

Below 20 21-30

31-40 above 40

39

TABLE NO 4. 3

OCCUPATIONAL CLASSIFICATION

TYPE OF OCCUPATION NO. OF RESPONDENTS PERCENTAGE

GOVERNMENT 3 6 %

PRIVATE 11 22 %

STUDENTS 34 68 %

SELF-EMPLOYED 2 4 %

OTHERS - -

TOTAL 50 100%

Source: Primary Data

INFERENCE:

From the table it is understood that students prefer eating at restaurants often. Working

fraternity also enjoy dining in restaurants.

40

CHART NO 4. 3

OCCUPATIONAL CLASSIFICATION

OCCUPATION

6%

22%

Government

Private

Students

Others

68%

41

TABLE NO 4.4

MONTHLY INCOME CLASSIFICATION

INCOME LEVEL NO. OF RESPONDENTS PERCENTAGE

BELOW 5000 4 8 %

5000-10000 2 4 %

10000-50000 10 20 %

ABOVE 50000 3 6 %

NOT APPLICABLE 31 62 %

TOTAL 50 100%

Sources: Primary data

INFERENCE:

From the table it is clear that since lot of students visit restaurants they have not started

earning income. It is followed by respondents earning 10000-50000 which shows they are

moderately earning group.

42

CHART NO 4.4

LEVEL OF INCOME

M ONTHLY INCOME

8%

4%

20%

62%

6%

Below 5000

5000-10000

10000 -15000

Above 50000

Not Applicable

43

TABLE NO 4.5

FREQUENCY OF VISITS IN A MONTH

FREQUENCY OF VISITS NO. OF RESPONDENTS PERCENTAGE

DAILY - -

TWICE 31 62 %

THRICE OR MORE 19 38 %

NOT EVEN ONCE - -

TOTAL 50 100%

Source: Primary data

INFERENCE:

From the table it is understood that respondents often visit restaurants twice in a month.

Some of them make thrice or more visits too. This may be due to taste preferences and earning

capacity.

44

CHART NO 4.5

FREQUENCY LEVEL

FREQUENCY OF VISITS TO RESTAURANTS

0% 0%

38% Daily

Twice

Thrice or more

Not even once

62%

45

TABLE NO 4.6

TYPE OF RESTAURANTS

TYPES NO.OF RESPONDENTS PERCENTAGE

AIR-CONDITIONED 32 64 %

NON- AIR CONDITIONED 18 36 %

TOTAL 50 100%

Source: Primary data

INFERENCE:

From the table it is clear that majority of the respondents visit air- conditioned restaurants.

46

70% 60% 50% 40% 30% 20% 10%

0%

CHART NO 4.6

TYPE OF RESTAURANTS

TYPE OF RESTAURANTS THEY VISIT

64%

36%

Air-Conditioned Non-Air conditioned

47

TABLE NO 4.7

FACTORS CONSIDERED BEFORE VISITING A RESTAURANT

FACTORS NO. OF RESPONDENTS PERCENTAGE

PRICE CHART 22 44 %

HYGIENE 20 40 %

AMBIENCE 5 10 %

GREETING WITH 3 6 %

WARMTH

TOTAL 50 100%

Source: Primary data

INFERENCE:

From the table it is clear that, respondents regard price chart as number one criteria

before stepping into a restaurant. Hygiene is also regarded as important in restaurants.

48

CHART NO 4.7

FACTOR CLASSIFICATION

FACTORS CONSIDERED BEFORE STEPPING IN

T O RESTAURANTS

6%

10%

44% Price Chart

Hygiene

Ambience

Greetings with warmth

40%

49

TABLE NO 4.8

MODES OF PAYMENT

MODES OF PAYMENT NO. OF RESPONDENTS PERCENTAGE

CREDIT CARD 3 6 %

DEBIT CARD 5 10 %

CASH 42 84 %

PAY PAL - -

OTHERS - -

TOTAL 50 100%

Source: Primary data

INFERENCE:

From the table it is clear that, majority of respondents make cash payment of their food

bill. It is also understood that working respondents prefer debit and credit card payment options.

50

CHART NO4.8

MODES OF PAYMENT

MODE OF BILL PAYMENT

0 0

6%

10%

Credit card

Debit card

Cash

Paypal

Other

84%

51

TABLE NO 4.9

FREQUENCY OF VISITS TO FOOD COURTS IN SHOPPING MALLS

FREQUENCY OF VISITS NO. OF RESPONDENTS PERCENTAGE

DAILY 1 2 %

TWICE 3 6 %

THRICE OR MORE 4 8 %

ONCE IN A MONTH 42 84 %

TOTAL 50 100%

Source: Primary data

INFERENCE:

From the table it is understood that majority of respondents prefer going to food courts in

shopping malls once in a month.

52

CHART NO 4.9

FREQUE NCY OF VISITS TO FOOD COURTS

FREQUENCY O F VISITS TO FOOD COURTS IN

S HOPPING MALLS

84%

6% 8%

2%

Daily Twice Thrice or more Once in a month

53

TABLE NO 4.10

IS BREAKAGE OF TAX CHARGES SHOWN IN THE BILL?

RESPONSES NO. OF RESPONDENTS PERCENTAGE

YES 36 72 %

NO 14 28 %

TOTAL 50 100%

Source: Primary data

INFERENCE:

From the table it is clear that the food bill shows the breakage of tax charges so that the

respondents are aware of the tax they are paying.

54

CHART NO 4.10

B REAKAGE OF TAX CHARGES

DO THE RESTAURANTS SHOW BREAKAGE OF

TAX CHARGES?

28%

Yes

No

72%

55

TABLE NO 4.11

KIND OF ITEMS OFTEN CONSUMED OUTSIDE

KIND OF ITEMS NO. OF RESPONDENTS PERCENTAGE

PIZZAS & SANDWICHES 15 30 %

MEALS & TIFFIN 17 34 %

FRESH JUICE & ICE CREAM 11 22 %

CHATS & SAVOURIES 7 14 %

TOTAL 50 100%

Source: Primary data

INFERENCE:

From the table it is clear that, most of the respondents consume Meals & Tiffin outside in

restaurants.

56

CHART NO 4.11

K IND OF ITEMS CONSUMED

KIND OF ITEMS OFTEN CONSUMED OUTSIDE

14%

30%

22%

Pizzas & Sandw

iches Meals & Tiffin

Fresh Juice & Ice cream

Chat items

34%

57

TABLE NO 4.12

FREQUENCY LEVEL- TIPS TO WAITERS

DO YOU PROVIDE TIPS TO NO. OF RESPONDENTS PERCENTAGE

WAITERS IN RESTAURANTS YOU

VISIT?

VERY OFTEN 13 26 %

OFTEN 13 26 %

SOMETIMES 10 20 %

RARE 8 16 %

NOT OFTEN 6 12 %

TOTAL 50 100%

Source: Primary data

INFERENCE:

From the table it is clear that most of the respondents provide tips to waiters regularly

when they visit restaurants.

58

CHART NO 4.12

TIPS TO WAITERS

DO YOU PR OVIDE TIPS TO RESTAURANT

WAITERS?

30%

26% 26% 25%

20% 20%

15% 16%

10% 12%

5%

0%

Very Often Ofte n

Sometimes Rare

Not Often

59

TABLE NO 4.13

CHANGE IN VAT CHARGES AMONG DIFFERENT RESTAURANTS

DO YOU ENCOUNTER CHANGES IN VAT NO. OF PERCENTAGE

CHARGES AMONG DIFFERENT RESPONDENTS

RESTAURANTS?

VERY OFTEN 6 12 %

OFTEN 6 12 %

SOMETIMES 16 32 %

RARE 11 22 %

NOT OFTEN 11 22 %

TOTAL 50 100%

Source: Primary data

INFERENCE:

From the table it is understood that the respondents sometimes encounter changes of

VAT charges among different restaurants.

60

CHART NO 4.13

C HANGES IN VAT CHARGES

35%

30%

25%

20%

15%

10%

5%

0%

DO TOU EN COUNTER CHANGES IN VAT

CHARG ES AMONG DIFFERENT

RESTAURANTS?

32%

22% 22%

12% 12 %

Very Often Often Sometimes Rare Not Often

61

TABLE NO 4.14

COMPARISION OF THE TAX RATES BEFORE VISITING A RESTAURANT

DO YOU COMPARE THE TAX RATES NO. OF PERCENTAGE

AMONG DIFFERENT RESTAURANTS RESPONDENTS

BEFORE YOU PLAN TO VISIT ANY ONE?

VERY OFTEN 2 4 %

OFTEN 4 8 %

SOMETIMES 11 22 %

RARE 11 22 %

NOT OFTEN 22 44 %

TOTAL 50 100%

Source: Primary data

INFERENCE:

From the table it is clear that, not often respondents compare VAT charges among

different restaurants before they plan to visit any one.

62

CHART NO 4.14

CO MPARISION OF VAT CHARGES

DO YOU COMPARE TAX RATES BEFORE YOU

VISIT ANY ONE? 50%

45%

40%

35%

30%

25% 44 %

20%

15%

10% 22% 22%

5%

8%

4%

0%

Very Often Ofte n

Sometimes Rare Not Often

63

TABLE NO 4.15

CONTRIBUTION FOR CHARITY PURPOSE

DO YOU CONTRIBUTE ANY AMOUNT FOR NO. OF PERCENTAGE

CHARITY PURPOSE IN THE RESTAURANTS RESPONDENTS

YOU VISIT?

VERY OFTEN 1 2 %

OFTEN 4 8 %

SOMETIMES 14 28 %

RARE 14 28 %

NOT OFTEN 17 34 %

TOTAL 50 100%

Source: Primary data

INFERENCE:

From the table it is clear that not so often respondents contribute for charity purpose in

restaurants.

64

CHART NO 4.15

C ONTRIBUTION TO CHARITY

DO YOU CONT RIBUTE FOR CHARITY PURPOSE

IN THE RESTAURANTS YOU VISIT?

35%

30%

25%

20%

15% 34%

28% 28%

10%

5% 8 %

2%

0%

Very Often Often Sometimes Rare Not Often

65

TABLE NO 4.16

FREQUENCY LEVEL- PACKING FOOD PARCELS

HOW OFTEN YOU PACK FOOD NO. OF RESPONDENTS PERCENTAGE

PARCELS FROM RESTAURANTS?

VERY OFTEN - -

OFTEN 6 12 %

SOMETIMES 14 28 %

RARE 19 38 %

NOT OFTEN 11 22 %

TOTAL 50 100%

Source: Primary data

INFERENCE:

From the table it is clear that the respondents rarely pack food parcels from restaurants.

66

CHART NO 4.16

FREQUEN CY LEVEL- PACKING FOOD PARCELS

HOW OFTEN YOU PACK FOOD PARCELS FROM

RESTAURANTS?

40% 38%

35%

30% 28%

25% 22%

20%

15% 12 %

10%

5%

0%

0% Very Often Often Sometimes Rare Not Often

67

TABLE NO 4.17

ARE TAX RATES MORE ON FOOD DELIVERED AT HOME?

DO YOU FEEL THAT THE TAX RATES ARE NO. OF PERCENTAGE

MORE WHILE YOU GET FOOD RESPONDENTS

DELIVERED AT HOME?

YES 27 54 %

NO 23 46 %

TOTAL 50 100%

Source: Primary data

INFERENCE:

From the table it is understood that majority of respondents find the tax rates to be more

while the food is delivered at their home.

68

CHART NO 4.17

MORE TAX R ATES ON FOOD DELIVERED AT HOME

DO YOU FEEL THE TAX RATES ARE MORE

WHILE THE F OOD IS DELIVERED AT HOME? 60%

50%

40%

54%

30% 44%

20%

10%

0% Yes No

69

TABLE NO 4.18

IS THERE DIFFERENCE IN VAT RATES FOR ONLINE FOOD ORDER?

DO YOU FIND DIFFERENCE IN NO. OF PERCENTAGE

VAT RATES FOR ONLINE FOOD RESPONDENTS

ORDER?

YES 22 44 %

NO 28 56 %

TOTAL 50 100%

Source: Primary data

INFERENCE:

From the table it is understood that majority of respondents don’t find difference in VAT

rates when they make online order.

70

60%

50%

40%

30%

20%

10%

0%

CHART NO 4.18

DIFFERNCE IN VAT RATES FOR ONLINE FOOD ORDER

DO YOU FIND DIFFERENCE IN VAT RATES FOR

ONLINE ORDER?

56%

38%

Yes No

71

CHAPTER 5

FINDINGS & SUGGESTIONS

5.1 FINDINGS:

1. The respondents according to the sample mostly go to air-conditioned restaurants. So,

they are charged more tax compared to respondents who prefer non-air conditioned

restaurants.

2. The respondents according to the sample mostly make cash payments. So they are

aware of the charges in food bill. They know for what they are paying, unlike

respondents who pay via cards is kept unaware of certain charges.

3. Some of the respondents from the sample state that breakage of tax charges is not

reflected in their bill.

4. The respondents according to the sample often provide tips to waiters’ inspite of

paying service charges.

5. Some of the respondents from the sample visit food courts in shopping malls thrice or

more time. According to the data one of the respondent visits food courts on a daily

basis.

6. Some of the respondents from the sample compare the VAT rates among different

restaurants before they decide visiting any one.

7. Some of the respondents from the sample pay service tax inspite of packing their food

parcels.

72

8. The respondents according to the sample mostly feel that tax rates are more on food

items delivered at home.

9. Some of the respondents from the sample feel that VAT rates for online order differ

from those rates charged for the same item when ordered at restaurants.

10. From the study it is understood that both the genders equally visit restaurants to enjoy

the food.

11. Most of the respondents are people of age group 21-30 and below 20. This may be lot

of young age group who like to hang out with their friends to restaurants.

12. Most of the students prefer eating at restaurants often. Working fraternity also enjoy

dining in restaurants.

13. It is clear that since lot of students visit restaurants they have not started earning

income. It is followed by respondents earning 10000-50000 which shows they are

moderately earning group.

14. Most of the respondents often visit restaurants twice in a month. Some of them make

thrice or more visits too. This may be due to taste preferences and earning capacity.

15. Respondents regard price chart as number one criteria before stepping into a restaurant.

Hygiene is also regarded as important in restaurants.

16. Majority of respondents prefer going to food courts in shopping malls once in a month.

17. It is clear that the food bill shows the breakage of tax charges so that the respondents

are aware of the tax they are paying.

18. Most of the respondents consume Meals & Tiffin outside, in restaurants.

19. Most of the respondents provide tips to waiters regularly when they visit restaurants.

73

20. Respondents sometimes encounter changes of VAT charges among different

restaurants.

21. It is clear that, not often respondents compare VAT charges among different

restaurants before they plan to visit any one.

22. It is clear that not so often respondents contribute for charity purpose in restaurants.

23. From the study it is clear that the respondents rarely pack food parcels from

restaurants.

24. Majority of respondents find the tax rates to be more while the food is delivered at

their home.

25. Majority of respondents don’t find difference in VAT rates when they make online

order.

74

5.2 SUGGESTIONS:

VAT is a complex model for people to understand. The customers of the restaurant

should be aware of what charges they are paying and is it justifiable on the grounds of law

enforced. The following are the important points a layman who eats at restaurant should be

aware of;

1. Service tax is more in air- conditioned restaurants. If there is centralized air

conditioning system in premises and restaurant is not having its own air

conditioning facility then also service tax will be applicable that’s why food giants

like Pizza Hut, Mc Donald’s etc which are situated in Malls charges service tax.

2. If a restaurant where air conditioning facility is not available charges service tax

on restaurant bill then you can object to pay service tax as it is not applicable on

your bill.

3. If your bill includes service charge you certainly need not pay tips to waiters as

the service charge is one that is supposed to be shared among staff of the

restaurant.

4. Service tax should be 40 % of the bill (i.e.) 4.94 %. But when it is exceeding 5 %

you can question it. Recently in UNION BUDGET 2015-16, it has been

announced that service tax has been increased from 12.36 % to 14 % (i.e.) 5.6 %.

5. VAT on food items & drinks are different. So, the customer should ask for

separate bill for food & drinks.

75

6. When food is parceled service tax need not be paid as the customer is not availing

the facilities in the restaurants.

7. When any packed food is charged more on MRP then VAT is not applicable on

that item. This is because in MRP’s of packed items VAT charge is already

included.

8. VAT can be only charged on the bill amount for items prepared by the restaurant

itself. No VAT should be charged on items like packaged drinking water, soft

drinks and other packed food items. (E.g.) This is why pizza & sandwiches shop

usually charge high VAT compared to other restaurants as the items they make are

prepared by themselves.

76

CHAPTER 6

CONCLUSION

Tax is a compulsory charge imposed by the Government without any expectation of direct

return in benefit. Tax imposes a personal obligation on the people to pay the tax if they are liable

to pay it. The general public should be taxed according to their ability to pay, and the people in

the same financial position should be taxed in the same way without any discrimination. Indirect

tax is the tax which is levied on commodities, a manufacturer charges the distributor and

distributor charges the wholesaler, wholesaler receives from the retailer, retailer in turn from his

customer. The burden of these taxes can be transferred to other forms like Value Added Tax,

Sales Tax etc.

Hence from the study it is concluded that VAT is a major source of revenue for

governments around the world and its importance continues to increase. There is a risk of under-

taxation and loss of revenue, or distorting trade through double taxation. Value added tax is a

major source of revenue to the government. Yet, its burden on customers must not be too high

that eating in restaurants is a dream for the community who earn lower levels of income. The

mechanism and implementation of VAT rules should be made efficient to ensure transparency to

the general public. Most of the customers have reservations in asking the restaurant managers on

the discrepancies in their bill. This is because customers who pay huge sum of food bill don’t

mind for a meager charge that is excessive. The customers should be aware of the UNION

BUDGET 2015-16 implementation of increase in service tax to 14 %. This attitude has to change

in order to enhance efficiency in VAT system in India.

77

BIBLIOGRAPHY

BOOKS:

1. Research Methodology - Shashi K. Gupta & Praneet Rangi.

2. Business Taxation- T.S Reddy and A. Murthy

JOURNALS & NEWSPAPERS:

1. International Journal of Research and Management

2. Global research journals

3. Sage Journals

4. Times of India

5. Indian express

6. The Hindu

WEBSITES:

1. www.business-standard.com

2. www.charteredclub.com

3. www.jagoinvestor.com

4. www.livemint.com

5. taxpaisa.com

6. persmin.gov.in

7. ctax.kar.nic.in

78

79