Laying the onus of GST collection and payment on food and ride aggregators will lead to major disruption for such e-commerce companies, tax experts said.
On Sept. 17, it was decided at the Goods and Services Tax Council meeting that e-commerce operators be made liable to pay tax on following services provided through them:
transport of passengers, by any type of motor vehicles
restaurant services provided, with some exceptions
This will become effective Jan. 1, 2022, said a statement issued by the Finance Ministry after the GST Council meeting.
Companies such as Zomato, Swiggy that deliver food and ride services such as Uber and Ola are likely among those covered by the decision. Finance ministry officials said, in a briefing after the council meeting, that the move is an effort to curb GST evasion by a primary supplier such as a restaurant.
For instance, starting January, food delivery firms will need to collect GST directly from the customers and pay the government, instead of the current practice where the full bill amount is paid by the aggregator to the food supplier who in turn is responsible for paying the tax to the government.
While full details will become evident only when this change is notified by the government here’s how tax experts are assessing the broad impact.
SR Patnaik, Partner & Head – Taxation, Cyril Amarchand Mangaldas
The recently conducted GST Council meeting has thrown a googly to disrupt food delivery and transport e-commerce business models to increase GST revenue from uncharted territories. While the notifications are yet to be notified, it appears that the burden to discharge GST by e-commerce operator would be widened to apply to all means of road transport as earlier they were liable to discharge GST on passenger transport services provided through a particular category of vehicles only.
In food-domain, it can only be hoped that no double taxation on restaurant services is triggered and only supplies made by un-registered restaurant service providers through the e-commerce players are brought within the ambit of GST. The changes would definitely increase the compliances for an e-commerce player.
Sameer Jain, Managing Partner, PSL Advocates & Solicitors
This move would certainly help the government protect revenue. With the latest changes, all the online transport aggregators such as Ola and Uber, and cloud kitchen apps like Zomato and Swiggy are bought in line within GST regime.
Nothing major has changed, earlier restaurants use to collect and pay the tax, which going forward will be done by the online aggregators – hence, GST collection point is simply being transferred. It would also mean a significant upgrade in the software and working of such select aggregators and app companies. Also, the net impact on consumer and aggregators and portals will be set off against the credit of input tax wherever available. The exact mechanics will only be clear once the language of the statute is made clear.
Adarsh Somani, Partner, Economic Laws Practice
The food and restaurant aggregator applications may probably be the ones to witness a paradigm shift (since being subjected for the very first time to such practice) but limit that to procedure and compliance as financial position may not change either for the operator or the restaurant.
What would be interesting is to see the likely exceptions from this new practice – whether that would be restaurants liable to 18% tax or a segregation made basis annual turnover that remains to be seen.
In case of the former, it may be noted that writ petitions in several High Courts are pending to test constitutional vires of enforcing a 5% rate of restaurants (without input tax credit) while not allowing the option of 18% with ITC.
The outcome of these petitions may accordingly have a bearing on the e-commerce operator too in view of the current council decision. Restaurants would be saddled with requirement of more smart book keeping and reconciliation measures probably pushing greater use of technology though pushing costs also towards the north.
Jatin Arora, Partner, Indirect Tax, Phoenix Legal
The decision to tax the e-commerce companies like Swiggy and Zomato has apparently been taken by the GST Council to address the issue of under-reporting of turnover by some restaurants. While this will ease the monitoring of revenue for the government, it will also lead to the supplies by smaller restaurants operating below Rs 20 lakh threshold limit becoming taxable. It is to be seen how the government will address this point as the decision will be implemented from January 1, 2022.
Abhishek Rastogi, Partner, Khaitan & Co.
These changes are imperative as the statutory provisions must adapt to the fast changing pace of doing innovative businesses. It remains to be seen how the tax cascading effect will be addressed.
For instances, when Zomato pays GST for the consideration charged for home delivery, whether Zomato will be eligible to avail credit of the procurements done from the restaurants. On the other hand, transport of passengers services have been extended to all type of motor vehicles to ensure applicability of GST when such transportation services are provided by Uber via motorcycle.
The legislative meaning of ‘electronic commerce’, in its present form circumscribes its scope to activities involving supply of goods and services. The press release made available post the 45th GST Council meeting indicates that the concept of ‘e-commerce’ as legislated for under the GST Laws, is set to be significantly expanded so as to encompass food delivery aggregators and passenger transport aggregators. As per media reports, the amendment is purported at curbing revenue leakage and under-reporting of revenue.