Swiggy / Zomato; Unveiling GST Burden Over Consumer

The burden of GST ( Goods and Services Tax ) on Zomato, Swiggy, and other food delivery app users affects the overall cost of ordering food online. This GST impact arises from recent changes in how food delivery services are taxed in India. The impact of GST on delivery charges may differ based on the regional economic conditions. In metros or tier 1 cities, consumers might be more willing to absorb additional costs due to higher disposable incomes, whereas consumers in tier 2 and 3 cities are more likely to reduce their usage or seek alternatives.

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 Introduction of GST on Food Delivery Services

The Central Government had made significant changes in levying of GST in food delivery platforms like Zomato and Swiggy effective from January 1, 2022.  As per the changes, the responsibility to collect and deposit GST has shifted from restaurants to the food delivery platforms themselves. Before the change, the restaurants registered under GST used to charge and deposit GST on the food ordered by customers.

Now the Zomato, Swiggy, and other delivery platforms are required to charge and collect GST from customers directly.The introduction of GST on food delivery services such as Zomato, Swiggy, and other similar platforms in India significantly impacted the way taxation is handled in the food delivery sector.

The rationale behind this shift is to prevent tax evasion. It was observed that many small restaurants, especially those not registered under GST, were not paying the required GST. By making e-commerce operators responsible for tax collection, the government ensures better compliance and prevents revenue leakage.

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Applicable GST Rates

GST on Restaurant Services: The GST rate for food services provided by restaurants ( including delivery through Zomato/Swiggy ) is typically 5%, without input tax credit ( ITC ).

Taxation of Non-Restaurant Services: For other services like deliveries from cloud kitchens or certain types of eateries, the applicable GST rate could be different.

Service Fees: In addition to the GST on food, platforms may charge service fees, which may also attract an 18% GST.

Impact on Users

For consumers, the overall cost of ordering food from these platforms did not change significantly as the 5% GST rate remained the same. However, in certain cases, the visibility of taxes on the invoice became clearer due to the platforms' direct responsibility for collecting GST.Other issues which may raise would be the price Hike.

In practice, this change has resulted in food orders through platforms like Zomato and Swiggy becoming slightly more expensive because the GST is directly added to the bill at checkout. Whether the restaurant is registered under GST or not, the food delivery platforms are now required to charge GST, ensuring uniform tax collection across all orders.

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GST Calculation

Base Food Price: ₹500

Delivery Charges: ₹40 ( with 18% GST )

Total before GST: ₹540

GST on Food ( 5% ): ₹500 x 5% = ₹25

GST on Delivery Charges ( 18% ): ₹40 x 18% = ₹7.20

Total GST: ₹25 + ₹7.20 = ₹32.20

Final Price: ₹540 + ₹32.20 = ₹572.20

 Changes in Ordering Behaviour

Before the rule change, smaller eateries and restaurants that were not registered under GST did not charge GST. With the new changes, even these restaurants will have a 5% GST charged when customers order through Zomato or Swiggy, potentially making food orders from smaller outlets more expensive.

Regular users of these platforms may feel the cumulative effect of the added GST burden, especially with larger orders.

With 5% GST being added not only on the food but also on delivery charges, consumers became more price-sensitive. The additional costs, although small, can accumulate, especially for frequent users of food delivery apps. As a result, some consumers may now limit their ordering frequency, opting for more infrequent but larger orders to offset the delivery costs. Due to the increased final cost, some consumers may choose to pick up their orders directly from restaurants to avoid paying GST on delivery charges, or they might shift to dining in at restaurants when convenient.

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 Compliance and Revenue Collection

Zomato, Swiggy, and other delivery platforms must now comply with the responsibility of tax collection and deposit, which makes the entire food delivery ecosystem more regulated. The government benefits from more consistent tax revenue from the growing online food delivery market, helping to reduce tax evasion from unregistered or small restaurants.

Impact on Discounts and Offers

Platforms may reduce the level of discounts or offers to offset the compliance burden, which, combined with the GST, may lead to higher overall costs for users.Some restaurants might increase their menu prices to adjust to the GST regime and the commission they pay to platforms which  indirectly affecting customers.

Subscription plans such as Swiggy Super or Zomato Pro that offer free or discounted delivery have gained popularity as a result of the GST on delivery charges. Consumers find value in these subscription models to save on frequent delivery fees.

The adoption of these subscription models has led to a segment of consumers who prioritize using delivery apps more often, as they feel they are saving money through reduced delivery costs.

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What Can Users Do?

• Compare Prices: Users can compare the cost of ordering through the platform versus dining at the restaurant directly, as in-house dining may sometimes be cheaper when considering the GST and delivery fees on online platforms.

• Look for Offers: Despite the GST, users can still make use of offers, coupons, and discounts offered by Zomato and Swiggy to mitigate the impact of the tax on their total bill.

The introduction of GST on delivery charges has made consumers more cost-conscious, leading to changes in ordering frequency, order size, and use of discounts and alternatives. Although the GST rate on food and delivery is relatively low, the cumulative impact of taxes, delivery fees, and service charges is enough to influence consumer behavior, particularly in terms of bundling orders, grouping deliveries, and increased scrutiny on pricing. The 5% GST on food items, along with 18% GST on service charges ( like delivery fees ), has made food orders slightly more expensive. However, this change has brought greater compliance and transparency to the online food delivery ecosystem. Users can mitigate the impact by taking advantage of discounts and comparing dine-in options versus delivery orders.

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