INDIA – The National Anti-Profiteering Authority (NAPA) has questioned Subway, Yum Restaurants owned Pizza Hut and Kentucky Fried Chicken (KFC) for not fully passing on cuts in goods and services tax (GST) rates to consumers.

The fast food restaurants were indicated to have impartially adhered to lower GST rates by passing tax cuts on select products and not across the board, ET Retail reports quoting an official aware of the issue.

Effective July 2017, the GST Council announced lower rates from 18% to 5% for air-conditioned restaurants and 12% for non-air conditioned ones.

Speaking on the inquiry, a Yum India spokesperson told ET Retail: “We will extend our fullest cooperation to the authorities on any inquiry they may have.

“We are awaiting further details from the authorities and are unable to comment further at the moment.”

The quick service chain competes McDonald’s and Domino’s, runs more than 700 KFC and Pizza Hut restaurants and a small number of Taco Bell stores through two franchisees, that is Ravi Jaipuria-promoted Devyani International and Sapphire Foods India.

While Pizza Hut operations are entirely franchised, close to 250 KFC stores in India are franchise operated, while Yum has stakes in remaining 95.

Subway, a sandwich and salads chain which operates 630 restaurants in India responded through a spokesperson who said it was fully cooperating with the national anti-profiteering group in its investigation.

Passing on partial benefits

While there were no guidelines for businesses on anti-profiteering, some companies have been accused of either not passing on the benefits to all consumers or leaving out certain products out on the benefits of lower rates.

Many companies didn’t reduce prices consistently across menu and according to them, GST cut came with a rollback of input tax credit that impacted profitability by 10-18% and limited their capacity to make price cuts.

A similar investigation was carried out on Domino’s Pizza, operated by Jubilant FoodWorks after the anti-profiteering council reduced and slashed the rates on some products.

Basically, lower tax rates mean lower prices for products and though restaurant chains have been pushing value with entry-level pricing, menu items with mass pricing have become cheaper, while premium dishes have become costlier.

The anti-profiteering framework was initiated by the government to ensure companies pass on the benefits of reduced tax thus protecting consumers from any runaway price rise.

According to anti-profiteering provisions, companies were to pass on any benefits from a lower GST rate to consumers on a mandatory basis.