Ordering food on platforms like Swiggy and Zomato could get more expensive as they will have to collect and pay taxes on behalf of all restaurants from January 1, 2022. The new move is a result of the Treasury Department’s update. Food aggregators are ordered to pay five percent of goods and services tax (GST) for the delivery of cooked food through their platforms. Experts believe that the update will affect both end users and small restaurants. At the same time, platforms like Swiggy and Zomato are expected to have additional compliance burdens due to the change in the tax system.
The GST Council, at its 45th meeting in September, recommended that grocery delivery platforms such as Swiggy and Zomato pay for the GST on behalf of the on-board restaurants that have them on board. Earlier this month, the Treasury Department issued a circular announcing that the new regime will take effect from January 1st.
“Since ‘restaurant service’ was reported in accordance with Section 9 (5) of the CGST Act of 2017, the e-commerce operator (ECO) is from the 1st by ECO,” says the circular.
The update makes food aggregators liable for collecting and filing GST from all restaurants they have on their platforms. This means that for every order that a platform receives from a restaurant, a platform must keep a separate GST record for it. It will require additional resources from platforms to comply with the regime.
“While consumers are likely to see their ecom grocery bills spike from January 1st, regulatory compliance for ecommerce grocery operators is expected to increase significantly,” said S. Mani, Partner, Deloitte India.
The change will also force small restaurant owners and grocery stores to pay five percent GST on all orders they receive through online platforms. This is likely to have an impact on their income and eventually lead them to charge more for the orders they process through apps like Swiggy and Zomato.
“The GST changes are likely to have an impact on end users as the cost of ordering from smaller restaurants previously outside the GST range will increase when ordered through food aggregators,” said Rajat Bose, partner at Shardul law firm Amarchand Mangadas & Co.
Tax experts told Gadgets 360 that small restaurant owners who fall below the GST threshold, annual sales less than Rs. 40,000,000 are not required to pay GST in a normal scenario.
Some stakeholders see the GST update for grocery delivery as positive and a good step for competition. Government officials also claimed that the change will essentially help curb tax evasion to some extent, as online platforms’ liability for GST deposits will allow the central finance department to collect the taxes restaurants would otherwise have avoided .
“The government has just transferred responsibility to Zomato and Swiggy or some other online portal,” said Kabir Suri, president of the National National Restaurant Association of India (NRAI). “The costs for the customer remain the same.”
Small restaurant owners, however, see the update as a barrier to entry for new players.
“The move will hit small players in the market and have an impact on the customer base of restaurants that are not yet covered by GST due to low sales,” said Sarabjeet Singh, owner of a Sizzlin Slices pizza corner.
Singh noted that while his restaurant is already paying the five percent GST, the update will be cumbersome for his team and that they will have to look at how much tax is being paid directly through the platforms and what part they will have to pay separately.
The COVID-19 pandemic increased online orders in the country as people were afraid to go out and eat in person. Many small restaurants also started due to the high demand. However, the government move may lead street shops and local grocery corners to look for alternatives.
“We are already struggling to make a living as restrictions wear off and people have started moving into large grocery stores,” said Gautam Kumar, a street sandwich shop owner in New Delhi who started selling through Swiggy during the lockdown.
“It’s difficult for people like us to generate income after commissions platforms. In such a scenario, it seems like a mystery how we can handle the additional five percent cut, ”he said.
Swiggy and Zomato declined to comment on the article.
In addition to the food aggregators, the Ministry of Finance will also prescribe a GST requirement of five percent for car pooling with all kinds of vehicles from January 1st. Platforms are already taxable for taxi rides, but there are no such obligations for bike and car bookings.
“While we know the government needs to collect revenue, we urge the government to reconsider this tax, which will end up hurting motorists’ revenues as well as the government’s digitization agenda,” Uber India said in a statement sent to Gadgets 360.
“Many drivers across India rely on Uber and other apps to make a living. Drivers, especially women and the elderly, like to book a car via an app because of the safety and convenience that goes with it. But they also value affordability. This tax leads to an increase in platform tariffs and a corresponding decrease in demand. Driver and driver will both lose in this scenario, ”the company said.
It was also asked whether this tax results in actual revenue gains for the government.
“As demand shifts to hailstones, the revenue from the GST, which is selectively applied to online bookings, is likely to be marginal at best,” said Uber India, adding that the tax creates an uneven playing field.
Uber went to the Delhi Supreme Court earlier this month to challenge the GST regime over the autorickshaw services booked through its platform. Similarly, bike taxi platform Rapido recently knocked on the door of Telangana High Court to question the norm for bike touring.
Bose stated that the question of whether taxi aggregators need to charge GST to provide auto rickshaw service is already pending in two top courts, but there is currently no suspension.
“It will be interesting to see if food aggregators turn to the Supreme Court for similar reasons,” he noted.