GST 2.0: Domino’s, direct restaurant orders to have edge over food delivery via Zomato, Swiggy

Domino’s levies 5 per cent GST on its food orders — the rate for restaurant services — along with packaging charges. Since Domino’s has its own delivery network, even if one places an order through Zomato and Swiggy, they need not pay the 18 per cent GST on delivery, creating an incentive for customers to order directly from it.

Customers may also feel incentivised to order directly from restaurants in their neighbourhood as such orders will only attract 5 per cent GST for the restaurant services and not the 18 per cent levy that is going to be levied for local delivery services through electronic commerce operators such as Zomato and Swiggy.

“For Domino’s and other similar restaurants with their own delivery network, the tax position has not changed, whereas for Zomato, Swiggy, the tax position was not clear whether GST is applicable on delivery separately or not. Now, it is clear that GST is applicable,” an industry source said.

Delivery companies are likely to pass on the hit from the 18 per cent levy to the consumers. A senior executive at a food delivery company said that while they were assessing the hit on revenues due to this, initial calculations show that it could cause them an annual hit of upwards of Rs 200 crore. “We would have no other option but to pass on that hit to customers, so you can expect delivery fees going up, or even delivery partner earnings taking a hit. The cost of food could also go up,” the executive told The Indian Express.

This fresh incentive to order from restaurants either via their apps or through a phone call directly in order for customers to avoid paying the 18 per cent GST on delivery charges for orders via Zomato and Swiggy could inadvertently push customers to order directly. If this were to become a trend, the fresh GST would give new life to an old campaign several restaurants ran some years ago, appealing customers to purchase directly from them, so that they could reduce their dependence on third-party food delivery platforms.

In 2019, the National Restaurants Association of India (NRAI) launched the #logout campaign, which had come in response to deep discounting offered by online food ordering and aggregator companies such as Zomato and Swiggy. For restaurants, online delivery platforms’ stranglehold over deliveries and discovery has become a cause of concern – something they say they can’t afford losing out on. But, by choosing to rely on these services, they feel they are subject to the platforms’ policies on discounting and commissions. Restaurant owners have also alleged antitrust practises being adopted by food delivery companies.

The GST Council in its 56th meeting held last week has issued a long-pending clarification on the applicable GST rate on delivery services. The supply of local delivery services through electronic commerce operators would be notified under Section 9(5) of the Central GST (CGST) Act, with the Council recommending an 18 per cent GST on such services. The taxation of food delivery service through e-commerce operators had so far been a grey area and a point of contention between GST authorities and delivery companies like Swiggy and Zomato.

Food delivery through electronic commerce operators (ECOs) are segregated into two parts: restaurant services and delivery services. Restaurant services supplied through ECOs are at present subject to 5 per cent GST without input tax credit. Restaurant services supplied through ECOs were brought under section 9(5) of CGST Act, 2017 with effect from January 1, 2022 on the recommendations of the 45th GST Council meeting held in September 2021. However, payment of GST on the delivery service in relation to restaurant services supplied through an ECO was not notified explicitly.