Zomato’s shares opened flat on Thursday, as reports emerged about tax notices being served to food delivery aggregators Zomato and Swiggy over non-payment.
As of the previous day’s (November 22) closing, Zomato shares concluded the session at INR 115.25. As of 9:20 am on November 23, the stock was trading at INR 114.
In January 2022, the government included ‘restaurant services’ and cloud kitchens within the scope of Section 9(5) of the CGST Act, 2017. This resulted in platforms such as Swiggy and Zomato being required to pay a 5% GST on the ‘restaurant services’ they provide.
Zomato and Swiggy have reportedly been issued notices for a combined goods and services tax (GST) amounting to approximately INR 1,000 Cr. Tax authorities now consider delivery charges collected by these platforms as part of their revenue.
Both food delivery platforms have been instructed to remit INR 500 Cr each, representing the 18% tax imposed on the entirety of the delivery fees they have accumulated since the initiation of their food delivery services.
The delivery fees imposed by both Swiggy and Zomato have consistently sparked debate and controversy, eliciting diverse opinions.
In 2016, Swiggy initiated the practice of charging food delivery fees, and following suit, Zomato also introduced delivery charges.
Having established a standard for delivery fees, Zomato initiated a loyalty program now known as Zomato Gold. This program enables customers to waive delivery fees by subscribing to a monthly plan, which also comes with additional perks.
Similarly, Swiggy introduced Swiggy One, adopting the concept of eliminating delivery fees through a subscription model, accompanied by additional benefits.
Zomato and Swiggy collectively fulfill 1.8 million to 2 million orders daily nationwide. The introduction of a new Goods and Services Tax (GST) has the potential to disrupt their cash flow.
Nevertheless, both platforms have initiated the imposition of a platform fee on orders, with fees ranging from INR 2 to INR 5 per order. Importantly, this fee is applicable universally to all customers, regardless of whether they are enrolled in any particular loyalty program.
Read More: Zomato extends platform fee to wider user base, implements INR 3 charge in select cities
Also Read: Swiggy increases platform fee to INR 3 per order to boost profitability ahead of IPO in 2024
Meanwhile, Zomato announced its second consecutive profitable quarter, witnessing a notable surge in profit after tax to INR 36 Cr during the September quarter of the financial year 2023-24 (FY24). This marked an 18-fold increase from the PAT of INR 2 Cr in the previous quarter.
Read More: Zomato reports remarkable surge in profit, achieving second consecutive profitable quarter in FY24