Coffee And Cigarettes

Bean It Up is a little known coffee shop just below my office. You cannot deny the fact that it has a good name for a coffee shop. Everything else is pretty average. The Chicken Stub and Pasta Salad are the better options on the menu. But I am not going to talk about food today. What I would like to comment upon is their accounting which is pretty bad to say the least. If they keep up with the policy that I am about to discuss, they will land up in trouble.

Bean It Up offers discounts to employees of my company which is a not so modest 15 %. They also charge service tax, which they have to, thanks to the government policies. Here is the clincher; they give the discount on the taxed price and not on the original price. If you cannot comprehend what the difference is, let me clear it out for you. Let us say that the service tax is 10 % for easier calculations.

This is what they do (Case 1):

Chicken Stub + Pasta Salad = Rs. 100

Service Tax = 10 % of Rs. 100 = Rs. 10

Total Amount = Rs. 110.

Discount = 15 % of Total Amount = 15 % of 110 = 16.5 Rs.

Total Amount payable by customer = 110 – 16.5 = 93.5

Here they are getting 93.5 Rs. from the customer and they are giving 10 Rs. in taxes to the government. So they are making 83.5 Rs.

This is what they should do (Case 2):

Chicken Stub + Pasta Salad = Rs. 100

Discount = 15 % of bill = Rs. 15

Total Amount after discount = Rs. 85

Service Tax = 10 % of billable amount = 10 % of 85 = 8.5 Rs.

Total Amount payable by customer = 85 + 8.5 = 93.5

As you can see the customer has to pay the same amount so he would not mind either of the policies. But what does the government get in taxes. In case 1 it was getting 10 Rs. and now it is getting 8.5 Rs. In Case 1, the shop is making 83.5 Rs. In Case 2, the shop is making 85 Rs. If they continue with this policy they will lose 1.5 % of revenue earned which is huge to say the least. As far as the legality of case 2 is concerned, I am not exactly aware. But it does not sound illegal, even unethical to me. Ans Case 1, well…. That just sounds plain stupid.