Beginning January 1, the GST Council has accepted a proposal to hold food-delivery companies such as Zomato and Swiggy accountable for collecting and depositing the 5% GST on food with the state.
The GST Council announced several amendments affecting food delivery aggregators and other companies that hire gig workers. Customers, not restaurants, will now pay Goods and Services Tax (GST) to online meal delivery services, which will be forwarded to the tax department.
It does not imply a new tax for customers; rather, the GST they pay on meals delivered to their homes by companies like Swiggy and Zomato will now be sent to the government via a separate channel.
This essentially means that these applications would now be compelled to collect 5% GST, or Goods and Services Tax, from consumers rather than the restaurants from where they pick up orders, Finance Minister Nirmala Sitharaman said following the Committee meeting on Friday evening.
What consequences will this have?
Currently, if a consumer purchases food from Business A via Swiggy or Zomato, the food delivery platform receives the 5% food tax from the customer and passes it on to the restaurant. However, the government believes that numerous eateries, although having a significant turnover, have not deposited their tax. As a result, from January 1, food-delivery apps will collect and deposit the tax on behalf of the business. As a result, restaurants will be required to register themselves in the same way that e-commerce companies do.
Is there any difference for the end-user?
No, because no additional taxes have been implemented, consumers will continue to pay the 5% rate on food ordered online.
The GST Council proposal, which was approved on Friday, also included delivery services in the tax net, but it determined that because the customer does not directly use the services of a delivery executive and does not have a choice in which delivery executive services them, the responsibility for paying the tax on delivery services will fall on the food-delivery apps.
What has changed in the world of restaurants and delivery apps?
Smaller eateries, particularly those with annual sales of less than Rs 20 lakh, are expected to bear the force of the impact, according to tax experts, because they were previously excluded from the GST net. Because the aggregator is responsible for tax collection, these smaller restaurants will also be required to pay taxes.
Most eateries, however, would now face an additional compliance burden in the form of keeping two different books of accounts — one for their regular business and the other for sales done through Zomato or Swiggy.
This will also increase the burden of accountability for aggregators in collecting and accounting for taxes on behalf of restaurants.
The change may also lead to some confusion about the qualification for input tax credits, which food aggregators are anticipated to seek clarification from the government.
“A new tax has been imposed,” the minister of finance announced.
Customers’ bills for meals delivered to their homes via online platforms already include a tax component. However, aggregators pay this tax to eateries, who then remit it to the government.
Restaurants listed with online delivery services pay 5% GST on food bills, while the corporations pay 18% VAT on the commission they get from the restaurant. However, there were numerous instances of tax evasion in which eateries refused to pay their taxes, according to Revenue Secretary Tarun Bajaj.
“There have been times when we discovered that the eateries were not paying their share, and some of them eventually went out of business. Because a large number of orders are now arriving through these aggregators, if you make an order from a restaurant through these aggregators, the aggregators will earn a profit from the client and pay it to the officials rather than the restaurant,” Bajaj explained.
“The proposal to need food aggregators to pay tax on restaurant supplies beginning January 1, 2022, appears to possess been taken supported actual data of restaurant underreporting, despite having collected tax on food supplies to customers. Where the restaurant is registered, the impact on the end consumer is supposed to be neutral. Going forward, there may be a 5% GST on supplies made by unregistered vendors “Mahesh Jaising, Partner at Deloitte India, stated.
“This type of proposition is typically carried out in two ways. “Possibility 1: The food aggregator would charge GST, whereas the restaurant would not. This is comparable to cab aggregators, and the restaurant would need to have two distinct invoicing systems – one for supplies in the restaurant and the other through aggregators.
Another alternative would be for restaurants to maintain charging GST while treating the food distributor as a supposed supplier (and buyer). This would have the same effect as Alternative 1 in terms of tax recovery from the food aggregator, with the exception that credit would have to be claimed by the food aggregator,” he noted.
The excise tax on autos and cigarettes, which has a maximum rate of 28%, is set to expire on June 30, 2022. The compensation system will be phased out on June 30, 2022. The states receive full compensation for the first five years of GST implementation, based on a revenue growth rate of 14% in the base year of 2015-16.
The eligibility group, which included national and state bureaucrats, predicted a Rs 2,000 crore GST revenue shortfall in 2019-20 and 2020-21.
As a result, it proposed a 5% tax on online meal delivery providers with no input tax credit. Many eateries were discovered to be failing to pay GST with the government, and some were not even registered.
