Zomato, Swiggy bite nails as they await clarity on GST
Food delivery apps are concerned that the way the tax system works, they could see a jump in their total cost.
Food delivery companies Zomato and Swiggy have approached the government seeking clarification on GST Council’s decision to tax food delivery services. They have sought clarity on how GST would be levied and whether it would lead to “tax cascading” or problems in claiming input tax credits, according to a report by The Economic Times.
GST Council decision
In the 45th GST Council meeting, it was decided to treat food delivery companies on par with restaurant services and tax them accordingly. As things stand today, GST is paid by the restaurants, not by the food delivery services.
According to the GST Council, food delivery apps will have to collect and deposit 5% GST with the government, in place of restaurants, for deliveries made by the platforms, beginning from January 1 next year.
The government has claimed that since no new tax has been introduced, the overall bill for the consumer will not increase since they will continue to pay the 5% tax on food ordered online.
However, the food delivery companies are concerned about the rise in their total cost following the GST Council’s decision. It was decided in last Friday’s meeting that the responsibility for paying the tax on delivery services will now lie with the food-delivery apps.
Cascading tax
According to legal experts quoted by ET, in the absence of any input tax credit, and owing to some other complications, food delivery companies such as Zomato, Swiggy and FoodPanda may see their tax cascading or even face double taxation since GST would be applied on two stages of the supply chain—once by the restaurants, then by the platforms. The legal experts said that the food delivery companies would not be able to set it off under the input tax credit mechanism.
The paper quoted Abhishek A Rastogi, partner at Khaitan & Co, saying, “The tax cascading due to the proposal must be the last thing as the indirect tax cost will be recovered from the final consumer and GST Council has been extremely pragmatic for the foods & beverages sector.”