The GST Council, the apex body deciding indirect tax on goods and services, on Friday said e-commerce operators will be made liable to pay tax instead of restaurants, but no new tax will be levied.
“The sum and substance of what is agreed, the place where the food is distributed, will be the point at which the tax will be collected by gig groups, Swiggy and others, and hence they will pay GST on that,” the finance minister said. Nirmala Sitharaman said.
“There is no new tax,” she said.
Revenue Secretary Tarun Bajaj clarified that earlier the tax payable by restaurants will now be payable by aggregators. The GST Council further said in a statement that this change will be effective from January 1, 2022, with few exceptions. During this, cloud kitchen 5% GST will be applicable without input tax credit.
The council also said that e-commerce operators would also be made liable to pay tax on the service of transport by motor vehicles to passengers of any type being provided through them with effect from January 1, 2022. This will affect aggregators like Ola and Uber.
Experts were divided on whether the tax would increase overall spending for consumers ordering food through the app, even as details of how the tax would be collected by the government were yet to be released. has not been done.
Bipin Sapra, Tax Partner at EY said, “By making the food delivery e-commerce operator liable to tax for restaurant services, all restaurants, including cloud kitchens, supplying food through these apps will be taxed, thereby reducing the amount of food supply. It will be expensive.”
At present, restaurants charge 5% GST without input tax credit on supply of services including supply of food and beverages. Meanwhile, food aggregators like Swiggy and Zomato are registered as tax collectors at source. They charge 18% GST on the delivery charges that consumers pay.
MS Mani, Senior Director, Deloitte India suggested, “While food delivery services will constitute e-commerce services, subjecting them to GST, adequate safeguards need to be put in place to ensure that small food outlets are safe. And consumers don’t pay more.” .
“Where the restaurant is not a small restaurant and has a turnover of more than Rs 20 lakh, there is no impact on the customer… where it is small, we will have to see what the notification and the scheme stipulate. If the food aggregator has to pay tax here, the cost could go up by 5%,” said Mahesh Jaisingh, partner, Deloitte India.
Divakar Vijaysarathi, managing partner, DVS Advisors LLP, said the tax would not increase the cost of the customers as the collection point alone is being changed. “Instead of what restaurants were collecting earlier, aggregators would go ahead and collect them. This is just to control tax evasion by restaurants,” he said.
Others pointed to the government’s efforts to generate proportionate revenue from taxes on online food ordering that has increased during the pandemic. The fitment committee, which suggests changes in the tax rate to the GST Council, noted that higher volume of food delivery was leading to higher tax evasion, especially in cases where restaurants are not registered, but Rs 20 lakh exceeds the exemption limit of revenue of Rs. one year.
Abhishek Jain, Tax Partner, EY said, “This move can help in increasing the GST collection from restaurant supplies.
Some experts also pointed to an increase in compliance burden such as Swiggy and Zomato, which would be required to raise their own invoices and submit GST to the government, even though the actual restaurant supplier is not liable to pay GST, as its The turnover limit is below the limit.
“With a window of only three months to make all software changes to ensure GST compliance, app-based ECOs in the food delivery business need to invest in specialized software solutions like governance, risk, compliance (GRC) platform to manage Risk, avoid compliance violations and automate internal audits,” said Arvind Varadarajan, MD, APAC, Metricstream, a global enterprise and risk solutions company.
Geetika Srivastava, executive partner, Tattvam Advisors, however, cautioned that the government should be careful not to add to the burden by creating another layer of input tax credit blockages already facing the sector.