India’s GST Council has approved a proposal to treat food delivery apps such as Zomato and Swiggy as restaurants and levy 5 percent GST on supplies made by them.
The mandate indicates that online food delivery apps will be required to collect 5 percent GST, or Goods and Services Tax, from consumers instead of the restaurant they pick up orders from, Finance Minister Nirmala Sitharaman said on Friday.
There would be no extra tax burden on the end consumers taking food delivery from restaurants registered with the GST. However, the levy will plug tax evasion being done by unregistered restaurants.
The changes will be effective from January 1, 2022 to allow the e-commerce operators time to make changes in their software for such tax to be charged.
“E-commerce operators are being made liable to pay tax on following services provided through them: transport of passengers, restaurant services provided through it with some exceptions,” a Finance Ministry statement on the GST Council’s decisions said.
“The decision to make food aggregators pay tax on supplies made by restaurants seems to have been done based on empirical data of underreporting by restaurants, despite having collected tax on supplies of food to customers. The impact on the end consumer is expected to be neutral where the restaurant is a registered one. For those supplies from unregistered, there could be a 5 percent GST going forward,” Deloitte India Partner Mahesh Jaising said.
As per estimates, the tax loss to government due to under-reporting by food delivery aggregators is Rs 2,000 crore over the past two years. Under the GST, these apps are currently registered as Tax Collectors at Source (TCS).
One of the reasons for designing such a proposal was that there was no mandatory registration check by Swiggy / Zomato and there were unregistered restaurants supplying through these apps.
