Food delivery platforms Zomato and Swiggy could face Goods and Services Tax (GST) related complications on tips given to delivery boys, surge fee, delivery fee and packaging charges charged to customers. Going ahead the additional monies levied on customers could also face GST for the platforms, the Economic Times mentioned in a report citing tax experts.
At present, restaurants pay GST at 5%. If Zomato, Swiggy pay GST at 5% then they will have to bear a higher cost. Both the companies in the past one week have also reached out to their tax advisors to seek clarity around this, the financial daily mentioned.
last month, the GST council has said that food delivery platforms such as Swiggy and Zomato should cough up 5% GST just like restaurants. This will come into effect from January next year.
This would mean that Swiggy and Zomato will have to slap a 5% tax on the total cost of food. However, it is still unknown if this GST would also be applicable on the additional charges taken by these platforms such as surge fee, delivery fee and packaging charges.
“This point (GST on surge fee, delivery cost etc) was being discussed. The company is looking to charge 18% GST instead of 5% GST on this cost, so that we can avail the input tax credit,” a person with direct knowledge of the matter told ET.
At present, restaurants do not get any input tax credit on the amount.
Input tax credit is basically GST paid on input services or raw materials that can be set off against a certain kind of future tax liability.
This means that the GST paid becomes pure cost. This would also be the case for Swiggy and Zomato if they pay 5% GST.
“The food delivery platforms have huge costs in terms of technology and rents and they would want input tax credit. The thinking is that the tax department too would not take objection when they are paying 18% GST instead of 5%,” the person close to the development told ET.
Then there is a question of what happens to tips that customers willingly give to delivery boys.
As far as tips are concerned, both the delivery start-ups will have to demonstrate to the tax department that they are just a “pass through” between the delivery boys and the customer and each and every penny is being handed over to the delivery boys.
“The tips paid by the customers to the delivery boys do not represent any service with respect to the delivery of food and must not be subject to tax as there is an absence of any activity,” the publication quoted as saying Abhishek A Rastogi, partner at Khaitan & Co.
