Zomato and Swiggy, leading online food delivery platforms in India, are currently embroiled in a significant tax dispute with the Indian tax authorities. Each company has been issued a Goods and Services Tax (GST) notice for Rs 500 crore related to the classification of their delivery fees.
The Core of the Dispute
The dispute centers around nearly Rs 1000 crore, which pertains to the delivery charges these companies collect from their customers. Zomato and Swiggy argue that the ‘delivery charge’ is merely a pass-through of the costs incurred by their delivery partners. These partners are responsible for transporting food orders from restaurants to customers. The companies claim that these charges are collected from customers and then directly transferred to the delivery partners. However, tax officials have disagreed with this interpretation, leading to the issuance of the GST notices.
Fee Adjustments by Swiggy and Zomato
In the wake of this dispute, both Swiggy and Zomato have adjusted their fee structures. Swiggy increased its platform fee from Rs 2 to Rs 3 per food order. This change was described by a Swiggy spokesperson as in line with common industry practices. Zomato also followed suit, raising its platform fee to Rs 3 per order from the initial Rs 2. Notably, Zomato started applying this platform fee even to Zomato Gold users, who were previously exempt.
Implications and Industry Outlook
This ongoing dispute underscores the challenges that digital platforms face in terms of tax classifications and compliance, particularly in dynamic markets like India. The situation highlights the complexities in the digital economy, especially regarding how digital services are taxed and regulated. The outcome of this dispute could have significant implications for the business models of these companies, potentially impacting their pricing strategies and customer charges.
Conclusion
As Zomato and Swiggy navigate these regulatory challenges, the industry and consumers alike are keenly observing the developments. The resolution of this dispute will not only impact these two companies but could also set a precedent for how digital platform services are taxed and regulated in India.