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Zomato, Swiggy face Rs 180-200 crore GST hit, plan to pass on burden to delivery partners, customers
Food delivery majors Zomato and Swiggy now face an additional goods and services tax (GST) burden of Rs 180-200 crore annually, after the GST Council on Wednesday clarified that online marketplaces must pay 18% tax on behalf of individual delivery workers who were previously outside the ambit of GST.
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Executives at both companies said they intend to pass on the incremental tax.
“This will be partly passed on to delivery workers and will likely reduce their earnings in the immediate term… but there is also a plan under consideration to charge a levy to consumers,” a senior executive at Eternal-owned Zomato said on condition of anonymity. A Swiggy executive confirmed the company also plans to transfer the tax burden.
The clarification settles a long-running contention between food delivery platforms and the government on whether aggregators are liable to pay tax on delivery fees collected by them.
In December 2024, Zomato received a notice from GST authorities demanding Rs 803 crore in unpaid tax, including penalty and interest, for the period between 2019 and 2022. Swiggy too was served a pre-demand notice over the issue.
Brokerage Jefferies noted that imposing GST at 18% on local delivery services “would be a slight negative for Eternal and Swiggy.” The development comes amid slowing growth, both firms have reported under 20% year-on-year growth in food delivery gross order value over recent quarters.
For the April-June quarter, Zomato posted operating profit of Rs 451 crore, while Swiggy's food delivery business reported Rs 192 crore in operating profit.
“We think this is relevant for food delivery or quick commerce operators. Currently, GST was not being paid on the delivery fee charged to consumers by platforms. With this change, platforms will now have to pay GST of 18% on the delivery fee, whether they treat it as part of revenues or as pass-through,” Morgan Stanley said in a note, adding that companies should be able to pass the burden onto consumers.
Eternal and Swiggy did not respond to ET's queries.
Past contentions
At the heart of the dispute is Section 9(5) of the Central GST Act, which requires digital platforms in sectors such as food delivery, ride-hailing and ecommerce to collect and remit indirect taxes on behalf of underlying service providers.
Delivery of food is categorised as a service and attracts 18% GST. The government's stance has been that since platforms already levy a service fee for delivery, the tax obligation rests with them.
Since January 1, 2022, Zomato and Swiggy which aggregate restaurants and manage delivery logistics, have been required to collect and remit GST on behalf of restaurants. However, the rules did not clarify the treatment of delivery fees under Section 9(5).
Platforms have argued that delivery fees collected from customers are passed on to gig workers. One executive explained that in many cases customers pay no fee or a discounted rate, but delivery partners are still compensated on a fixed per-km basis. “This gap between what customers are charged and what delivery partners must still be paid is absorbed by the platform as a way to drive growth,” the executive said.
Source: EconomicTimes
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