GST Council likely to reduce tax on food delivery to 5%

The Goods and Services Tax (GST) Council is reportedly considering a proposal to reduce the GST on food delivery charges from 18% to 5%. If the proposal is approved by the council, the new tax rate could come into effect from January 1, 2025. However, the report notes that food delivery platforms such as Zomato and Swiggy would not be allowed to claim input tax credits under this change.

This proposed reduction follows increasing scrutiny of food delivery platforms by tax authorities. Recently, Zomato was ordered to pay a significant sum of Rs 803.4 crore in taxes and penalties for failing to pay certain taxes from 2019 to 2022, particularly related to GST on delivery charges. Zomato acknowledged the demand in a regulatory filing, confirming the obligation to pay the taxes with interest and penalties.

The move to lower the GST rate on food delivery charges comes in response to requests from foodtech platforms, which have sought a tax reduction to bring the delivery charges in line with the rates applied to restaurants. A lower GST would provide much-needed relief and clarity for platforms like Zomato and Swiggy, which have been dealing with multiple tax notices.

Zomato’s troubles with the tax authorities are not limited to the Rs 803.4 crore demand from Maharashtra's GST authorities. The company has faced similar notices from tax departments in Karnataka, Haryana, and Gujarat earlier this year. Swiggy, Zomato's main competitor, is also facing GST liabilities of up to Rs 326.7 crore, according to its draft red herring prospectus (DRHP) filed with SEBI.

These developments come on the heels of Zomato’s successful Rs 8,500 crore fundraising through a qualified institutional placement (QIP) in November. Following the news, shares of Zomato rose by 2.03%, closing at Rs 294.25, while Swiggy saw an 11.7% increase, closing at Rs 594.80.