Swiggy, Zomato Orders May Become Costlier Due to GST Update

Food orders from platforms like Swiggy and Zomato may soon get more expensive, as they will have to collect and pay taxes on behalf of all restaurants starting January 1, 2022. The new measure comes as a result of the update issued by the Ministry of Finance under which Food aggregators must pay five percent of the Goods and Services Tax (GST) for orders of cooked food through their platforms. Experts believe that the update will affect both end consumers and small restaurants. At the same time, platforms like Swiggy and Zomato are also expected to have an additional compliance burden due to the change in tax regime.

The GST Council at its 45th meeting in September recommended compliance with food delivery platforms, including Swiggy and Zomato, to pay GST on behalf of their onboard restaurants. Earlier this month, the Finance Ministry issued a circular to announce that the new rule will take effect from January 1.

“As the ‘restaurant service’ has been notified under section 9 (5) of the CGST Act of 2017, the electronic commerce operator (ECO) will be responsible for paying the GST for the restaurant services provided, starting of January 1, 2022, through ECO ”, the circular saying.

The update will make food aggregators responsible for collecting and depositing GST from all the restaurants they have on their platforms. This means that for every order that a platform receives from a restaurant, they must maintain a separate GST entry for them. It will require additional resources from the platforms to comply with the regime.

In particular, the five percent GST requirement will be in addition to the existing 18 percent GST that platforms must pay to offer delivery services through their platforms. Basically, the tax will be applied to the price of the food that the platforms deliver to the customers.

“While consumers are likely to see an increase in their e-commerce food bills starting January 1, there is expected to be a significant increase in the compliance burden for e-commerce food operators,” said S Mani, Partner at Deloitte India.

The change will also force small restaurant and food store owners to pay five percent GST for all orders they receive through online platforms. This is expected to hurt their revenue and eventually push them to charge more for the orders they process through apps like Swiggy and Zomato.

“The GST amendments are likely to affect end consumers as the cost of ordering in smaller restaurants that were previously outside the scope of GST will increase if ordered through food aggregators,” said Rajat Bose, partner of the law firm Shardul Amarchand Mangaldas & Co.

Tax experts told Gadgets 360 that small restaurant owners who are below the GST threshold of generating an annual income of less than Rs. 40,00,000 are not required to pay GST in a normal scenario.

Some stakeholders see the update on the GST for positive food delivery and a good move for competition. Government officials also claimed that the change will essentially help curb tax evasion to some degree, as by making online platforms responsible for GST deposits, the central revenue department will be able to generate the taxes that restaurants they would have avoided otherwise.

“The government just shifted the responsibility to Zomato and Swiggy, or any other online portal,” said Kabir Suri, president of the National Restaurant Association of India (NRAI). “The cost to the customer remains the same.”

Small-scale restaurant owners, however, see the update as a barrier to entry for new players.

“The measure will affect small players in the market and impact the customer base of restaurants that are not yet under the GST regime due to low sales,” said Sarabjeet Singh, owner of the Sizzlin Slices pizza corner.

Singh noted that while his restaurant is already paying five percent GST, the update will make things cumbersome for his team and will also ask them to look at how much taxes are paid directly through the platforms and what part they have to pay. pay separately.

The COVID-19 pandemic increased online orders in the countryside, as people were afraid to go out and eat in person. Many small restaurants also started due to high demand. However, the government move may push street shops and local food corners to look for alternatives.

“We are already facing difficulties in generating our livelihood as restrictions ease and people have started moving to large food outlets,” said Gautam Kumar, owner of a street sandwich shop in New Delhi, which began selling Swiggy during closing.

“Generating income after giving commissions to platforms is difficult for people like us. In such a scenario, how we could handle the additional five percent cut seems a mystery, ”he said.

Swiggy and Zomato declined to comment on the article.

Along with food delivery aggregators, the Finance Ministry is also making a five percent GST mandatory for ride-sharing platforms carrying passengers in any type of motorized vehicle as of January 1. Platforms are already obliged to pay GST in case of taxi rides, but there are no such obligations for bicycle and car reservations.

“While we appreciate the need for the government to raise revenue, we urge the government to reconsider this tax, which will end up hurting car drivers’ earnings, as well as the government’s digitization agenda,” Uber India said in a statement sent. by email to Gadgets. 360.

“Thousands of car drivers across India rely on Uber and other apps for a living. Passengers, especially women and the elderly, like to reserve a car through an app because of the safety and convenience that comes with it. But they also value affordability. This tax will lead to an increase in platform fees and a corresponding drop in demand. Both passengers and drivers will lose out in this scenario, ”the company said.

He also asked if this tax will generate real revenue gains for the government.

“As demand shifts into street hail, GST revenue selectively applied to online bookings is likely to be marginal at best,” Uber India said, adding that the tax creates a field. of uneven play.

Uber earlier this month transferred to Delhi High Court for challenging the GST regime on auto-rickshaw services booked through their platform. Similarly, the Rapido bike taxi platform also recently knocked on the door of the Superior Court of Telangana to challenge the norm for bike rides.

Bose stated that while the problem of taxi aggregators having to charge GST for the provision of automatic rickshaw services is already sub judice before two higher courts, there is no suspension as of now.

“It will be interesting to see if food aggregators also approach the higher court for similar reasons,” he noted.


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