Food Delivery By Swiggy, Zomato Will Be Costly From Jan 1: Pay 5% GST On Delivery!

Back in September, Union Finance Minister Nirmala Sitharaman had announced that food delivery apps like Zomato and Swiggy will have to pay 5% GST levied on the supplies they deliver starting from January 1, 2022.

Govt Issues Clarification

Revenue Secretary Tarun Bajaj clarified that no new taxes have been introduced or announced and that it was simply a matter of the GST collection centre being transferred.

He explained that some restaurants were not paying taxes. 

So, the aggregator or the delivery apps in this case will collect the tax from the customer and pay to the authorities instead of the restaurant doing so. 

To Curb Tax Evasion

The decision was made by the central government in order to prevent revenue leakage by unregistered restaurants due to lack of mandatory registration check of restaurants by apps.

Although the tax rate is low, the revenue lost is significant since food delivery is a high-volume business.

So far, it is estimated that the government lost revenue of around ?2,000 crore.

Until now, food delivery apps were registered as Tax Collected at Source in GST records.

Responsibility Of The Apps

So, the tax was imposed on restaurant owners who then submitted it to the tax collector.

Now the change in rule means that the tax will be collected from customers and paid by the apps to the authorities.

With this, unregistered restaurants will be brought under the tax slab.

There are no implications for the customers since they are not paying anything extra, but the standard 5% tax on the food ordered online. 

Complications

The new tax rules pose a challenge to the apps since they have to swiftly change their software by Jan 1 now that the invoicing responsibility has been shifted to them.

They have a daunting task of having to classify each restaurant item and making the necessary changes in software.

For example, people often order combos of, say, Pizza and Coke.

Pizza is a restaurant service on which these apps will pay 5% GST.

But Coke attracts 28% GST and is paid by the restaurant.

Therefore, the two items in the same order will  require two invoices—one by the app on Pizza and on Coke by the restaurant.

Small Businesses

The new GST tax rule will impact small restaurants i.e. those with an annual turnover less than Rs 20 lakh which are now brought under the government tax net.

An additional compliance headache is having to maintain two separate accounts — one for their regular business and the second for the business done through Zomato or Swiggy.