GST Council may deliver blow to food-delivery operators Swiggy, Zomato

Online food-delivery operators such as Swiggy and Zomato may have to pay goods and services tax (GST) on restaurant services supplied through them. The GST Council in a meeting on Friday in Lucknow will take this up.

Estimating GST losses of Rs 2,000 crore in 2019-20 and 2020-21, the fitment panel has recommended food aggregators be classified as e-commerce operators and pay GST on behalf of the restaurants concerned.

Many restaurants are not depositing GST, while some are not even registered. The rate fitment panel has suggested the change come into effect on January 1, 2022, to allow food-delivery aggregators to make changes in their software.

However, experts say this may mean that restaurants will have to maintain separate accounts for sales not made through online food aggregators, leading to complexities for small restaurants. Restaurants providing hotel accommodation and having declared tariffs of Rs 7,500 and above per room per day may be excluded, the panel has suggested.

 GST authorities discovered cases where small eateries had a taxable turnover gap running into several crores. This means that the turnover declared by Swiggy or Zomato in their GSTR 8 returns was higher than the turnover declared by the eatery in its GSTR 3B, the summary return form.

GSTR-8 is a monthly return filed by e-commerce operators. It contains the details of supplies made to customers through the taxpayer’s e-commerce portal by both registered taxable entities and unregistered ones.

“There are no mandatory registration checks by Swiggy or Zomato and there are unregistered restaurants supplying through these food-delivery portals,” said a government official.

While the rate of tax of 5 per cent is low, the volumes are very high, which means that tax evasion is also high, he said.

“The supply of food through such aggregators has increased multi-fold during the Covid period,” he added.

It was discussed that in most of the cases the tax was collected but not paid to the government. The fitment committee has estimated a taxable gap in 2019-20 and 2020-21 at around Rs 15,000 crore, which may mean a tax loss of approximately Rs 2,000 crore.

The committee has also suggested notifying online food delivery operators as deemed suppliers under the Act. It includes declaring two supplies — supplies from restaurants (or suppliers other than restaurants) to online food aggregators and then from aggregators to consumers.

Cloud kitchen and ice-cream parlours

The GST Council may take up taxing cloud kitchens. The fitment panel has recommended these be classified as restaurants only and taxed at 5 per cent without input tax credit, and not 18 per cent.

A cloud kitchen is a delivery-only restaurant with no physical space, no dine-in space, or a takeaway counter. As for ice cream parlours, the committee of officers has recommended they not be classified as restaurants because no cooking takes place and be charged 18 per cent.

Other recommendations

The fitment panel has recommended correcting the inverted duty structure on diesel electric locomotives and increasing the rate to 18 per cent from 12 per cent as the rate on raw material or inputs of services is mostly 18 per cent or 28 per cent.

The committee has also recommended reduction in GST rates on biodiesel supplied to oil-marketing companies (for blending with diesel) from 12 per cent to 5 per cent.

The panel, however, turned down the proposal to cut rates on air coolers, ceiling fans, electric irons, household filters and pedestal fans from 18 per cent to 12 per cent because it might result in an inverted duty structure. It also turned down a proposal to reduce GST rates on lithium ion batteries used in electric vehicles and on battery charging services from the existing 18 per cent.