Domino Effect: Shield Yourself From A GST Hit By Choosing The Right Platform For Your Pizza Delivery

As India's food aggregator duopoly is set to be hit by an 18% GST liability on delivery fees, industry insiders expect a shift in consumer trends towards standalone platforms in order to avoid higher charges.

While Eternal Ltd.-owned Zomato and Swiggy Ltd. are likely to see some amount of price surges due to the increased goods and services tax liability, ordering directly from restaurants like Domino's or McDonald's will be much easier on consumer pockets due to a smaller 5% GST liability, multiple industry insiders told NDTV Profit.

To add some context, the GST Council clarification from earlier this month mandates that online marketplaces must pay an 18% GST on delivery fees collected on behalf of gig workers, who were previously exempt from GST compliance.

The Central GST act defines 'electronic commerce' as the supply of goods or services over digital or electronic network. Electronic commerce operators are persons who own, operate or manage digital or electronic facility, or platform for electronic commerce.

As per the current reading of the GST clarification, restaurants that include delivery in their native services will not be expected to pay 18% GST on delivery even if food is ordered from their websites, a tax lawyer told NDTV Profit.

These platforms, like McDonald's McDelivery website — operated by Westlife Foodworld Ltd. — and Domino's Pizza's website, which is run by Jubilant FoodWorks Ltd., currently charge only 5% GST, which is the standard rate levied on restaurant services. Delivery charges per order are standard for both restaurants.

Sources within both the firms, however, have said that they are still reading the fine print and are assessing what kind of an impact it will have on their tax liabilities, NDTV Profit has learnt.

But even beyond major food deliverers like McDonald's and Domino's, analysts expect some amount of consumers to shift to ordering directly from restaurants in order to make most of the potential taxation difference, which will end up making orders outside an aggregator more attractive.

NDTV Profit has reached out to both Jubilant and Westlife for comments on the story.

Food delivery partners are set to be hit the most due to a goods and services tax rate rejig as Eternal Ltd. and Swiggy Ltd. face a GST outgo of up to Rs 400 crore annually.

Both Eternal and Swiggy are said to be in active discussions about how to pass on the tax hit, with both companies seeing lesser payouts to delivery workers as the best available option, people with direct knowledge of the matter told NDTV Profit.

Currently, Zomato claims to have a network of 3.5 lakh delivery partners, while Swiggy claims to have over 5.2 lakh.

Some impact of the goods and services tax hit is also likely to be passed on to consumers, but the platforms are not keen on this option especially after the recent round of platform fees hikes, one of the abovementioned persons added.

NDTV Profit has reached out to both Swiggy and Zomato for comments on the story.

"GST liabilities on platform-based deliveries will likely result in up to a Rs 200 crore annual hit on Swiggy and Zomato each," explained Shobit Singhal, research analyst at Anand Rathi Institutional Equities. "If passed on to the consumer, daily volumes for both platforms are likely to take a hit, especially after the recent round of platform fees hike."

Both Eternal and Swiggy are said to be in active discussions about how to pass on the tax hit, with both companies seeing lesser payouts to delivery workers as the best available option, people with direct knowledge of the matter told NDTV Profit.

Currently, Zomato claims to have a network of 3.5 lakh delivery partners, while Swiggy claims to have over 5.2 lakh.

Some impact of the goods and services tax hit is also likely to be passed on to consumers, but the platforms are not keen on this option especially after the recent round of platform fees hikes, one of the abovementioned persons added.