Swiggy, Zomato to collect 5% GST from customers from January 1 – Know effect on food delivery cost.
The decision to levy 5% GST on food delivery app was made by the central government to prevent revenue leakage by unregistered restaurants.
The new year will begin with a five percent Goods and Services Tax (GST) levied on supplies made by delivery apps like Zomato and Swiggy. The move was announced by Union Finance Minister Nirmala Sitharaman in September. Food delivery apps will be treated as restaurants and five percent GST will be levied on the supplies they make starting from January 1, 2022.
The change in rule means that apps will collect the 5% GST from customers instead of restaurants from where they are delivering food orders. The decision to levy 5% GST on food delivery app was made by the central government to prevent revenue leakage by unregistered restaurants due to lack of mandatory registration check of restaurants by apps.
This is not necessarily bad news for customers as the rule change does not add extra tax burden on consumers ordering meals from GST-registered restaurants. The move instead will bring unregistered restaurants under the tax slab. Therefore, food delivery is unlikely to cost dearer. Nevertheless, the customers may end up paying more if some apps find a way to pass the tax burden on to the customers.
As was mentioned by the Finance Ministry, the customer will be the tax collection point once the rule change is enforced. Food apps were registered as Tax Collected at Source in GST records until now. The GST was levied on restaurants who then submitted it to the tax collector. Now, the tax would be collected from customers and paid by the apps to the authorities. The tax was being paid by the restaurant owners until now but the aggregator will also have to pay the same beginning from 2022.
At the time of the rule change announcement in September, estimates in news reports had the loss to the Exchequer from the alleged underreporting by food delivery aggregators at Rs 2,000 crores in the last two years.