E-commerce Operators (ECOs) in food delivery space like Swiggy and Zomato will not get input tax credit (ITC) under the new GST mechanism coming into effect from January 1. This will be included in the frequently asked questions (FAQs) expected to be released soon.
“We received representation on ITC eligibility and other issues. Since restaurants paying GST at the rate of 5 per cent are not eligible for ITC and only the onus to deposit the GST has changed, there is no possibility of ITC for food delivery platforms,” a senior Government official told BusinessLine .
The GST Council, in its meeting on September 17, recommended that ECOs in food delivery would be responsible for paying taxes. At present, it is the restaurants which are paying the taxes. The government has already clarified this is not a new tax and there will be no implications on customers. The rate of tax will continue to be 5 per cent with the Finance Ministry having already notified the change. However, this will not be applicable in case of restaurant services supplied from luxury hotels that declare tariff of any unit of accommodation not less than ₹7,500 a day.
The GST Council recommended for change on the basis of a suggestion by an e-commerce sectoral study of suppliers/ECOs dealing in food delivery. Under the existing system, these apps are registered as tax collectors at source (TCS). According to the officials, one of the reasons for such a change is the committee’s observation that there is no mandatory GST registration check by these food-tech companies and there were unregistered restaurants supplying through them.
Estimated revenue loss
It may be noted that although the rate of tax is low, the revenue missed is significant as food delivery is a flourishing, high volume business. The committee estimated the revenue loss at around ₹2,000 crore.
Another official said that data for Zomato and Swiggy were analysed for the October-December 2020 period for Haryana. For Zomato, it was found that the gap in the taxable turnover of suppliers where TCS was deducted by Zomato was greater than the turnover declared by the suppliers — ₹101 crore. Therefore, the tax evasion amounts to around ₹5.2 crore. In case of Swiggy, the gap in the taxable turnover for suppliers where TCS was deducted by Swiggy was greater than the turnover declared by the suppliers by ₹91 crore. The evasion of tax amounted to ₹4.5 crore, he said, adding that there is a suggestion for a new mechanism for taxes at the time of supply.
Smita Singh, Partner with Singh & Associates said that as a result of the new mechanism, the restaurants will also have to mandatorily register themselves as is done by e-commerce sellers. “Restaurants will have to bear additional compliance burden and they will have to account for not only their routine business but also now separate books of accounts for the business done through platforms like Swiggy, Zomato. For the aggregators, this will also increase the burden of compliance towards collecting and accounting for the taxes on behalf of the restaurants,” she said.