The GST Council, the apex body that decided indirect tax on goods and services, said on Friday that e-commerce operators will be made liable to pay the tax instead of the restaurants, but no new tax will be levied.
“The sum and substance of what is agreed, is the place where the food is delivered will be the point on which the tax will be collected by the gig groups, Swiggy and others, and they will therefore pay up GST on it,” finance minister Nirmala Sitharaman said.
“There is no new tax,” she added.
Revenue secretary Tarun Bajaj clarified that the tax that was earlier payable by restaurants will now be payable by the aggregators. The GST Council in a statement further said that the change will be effective from January 1, 2022, with some exceptions. Meanwhile, cloud kitchens will be taxed 5% GST without input tax credit.
The Council also said that e-commerce operators will also be made liable to pay tax on service of transportation of passengers by any type of motor vehicles being provided through them, from Janaury 1, 2022. This will impact aggregators such as Ola and Uber.
Experts were divided on whether the tax will lead to an increase on total outgo for consumers ordering food through the apps, even as details on how the tax will be collected are yet to be issued by the government.
“By making food delivery e- commerce operator liable to tax for the restaurant services, all restaurants including cloud kitchens supplying food through these apps would get taxed, making the food supply that much costlier,” said Bipin Sapra, tax partner at EY.
At present, restaurants charge 5% GST without input tax credit, on the supply of services including supply of food and beverages. Meanwhile, food aggregators such as Swiggy and Zomato are registered as tax collectors at source. They charge 18% GST on delivery charges which consumers pay.
“While food delivery services would constitute e-commerce services, sufficient safeguards need to be taken in subjecting them to GST to ensure that smaller food outlets are protected and consumers do not end up paying more,” suggested MS Mani, Senior Director, Deloitte India.
“Where the restaurant is not a small restaurant and has more than Rs 20 lakh turnover, no impact to customer… where it is a small one, we have to watch what the notification and the scheme prescribes. If food aggregator has to pay tax here, then there could an increased 5% cost,” said Mahesh Jaising, Partner, Deloitte India.
Divakar Vijayasarathy, managing partner, DVS Advisors LLP said that the tax would not increase the expenditure of the customers since the collection point alone is being changed. “Earlier restaurants were collecting, instead the aggregators would collect them going forward. This is just to control the tax evasion by restaurants,” he said.
Others pointed to the government’s efforts to get proportional revenue from taxes on online food ordering which has increased during the pandemic. The fitment committee, which suggests tax rate changes to the GST Council, noted that higher volume of food delivery was leading to higher tax evasion, especially in cases were the restaurants are not registered but have higher than the exempted threshold limit of Rs 20 lakh revenue a year.
“The move might help in increasing GST collections from restaurant supplies by shifting the taxing duty on established business players instead of small restaurants,” said Abhishek Jain, Tax Partner, EY.
Some experts also pointed to the compliance burden increase on like Swiggy and Zomato, who would need to raise their own invoices and deposit GST to government even if the actual restaurant supplier is not liable to pay GST due to its turnover being below threshold limit.
“With only a three-month window to make all the software changes to ensure GST compliance, the app-based ECOs in the food delivery business would need to invest in specialized software solutions like a Governance, Risk, Compliance (GRC) platform to manage risks, avoid compliance violations and automate internal audits,” said Aravind Varadharajan, MD, APAC, MetricStream, a global enterprise and risk solutions company.
Geetika Srivastava, Executive Partner, Tattvam Advisors, however, cautioned that government should be cautious of not adding to the burden by creating another layer of input tax credit blockage already suffered by this sector.