Proposed GST Reduction
India’s GST Council, chaired by the federal finance minister, is reportedly considering reducing the Goods and Services Tax (GST) on food delivery charges levied by e-commerce platforms. According to a CNBC-TV18 report, the tax rate may be lowered from 18% to 5%. This reduction, if approved, is expected to come into effect on January 1, 2022.
Impact on Food Delivery Platforms
The proposed tax cut aims to make online food delivery more affordable for consumers. However, it comes with a limitation: food delivery platforms like Zomato and Swiggy would not be eligible to claim input tax credits under the new structure. This could potentially increase the operational costs for these platforms, as they would have to absorb the GST paid on their expenses without offsetting it.
Context and Recent Developments
This consideration follows a recent order by India’s tax department, requiring Zomato to pay ₹8.04 billion in taxes and fines for non-payment of certain GST liabilities between 2019 and 2022. The scrutiny of tax compliance in the food delivery sector has intensified, bringing operational practices of major players under the spotlight.
Potential Benefits of the Tax Cut
Reducing GST on delivery charges may help boost demand for online food delivery services by lowering overall costs for consumers. It could also foster growth in the e-commerce food sector, which has seen rapid expansion in recent years.
Final Decision Awaited
The GST Council is yet to make a final decision on this proposal. If implemented, the tax reduction is expected to benefit consumers directly while posing challenges for food delivery platforms in managing their profit margins under the revised tax framework.
