Discounts offered by Swiggy, Zomato to come under taxman’s lens

The issue is around discounts offered by the delivery apps against using a particular credit card, debit card, or digital wallet for making payments.

People aware of the development said that the arrangements between restaurants and delivery apps that result in discounts could also face tax scrutiny.

Beginning January 1st, both Swiggy and Zomato are set to be treated on par with restaurants.

This would mean that Swiggy and Zomato would have to cough up a 5% tax on the total cost of food.

However, unlike directly buying food from a restaurant, complications arise as e-commerce operators (ECO) tend to offer discounts at various points.

To reduce prices for consumers, these companies offer discounts if money is paid through a particular credit or debit card.

So, for instance, the price of food is Rs 500, but the app deducts Rs 75 if the money is paid through, say, an HDFC credit card. The question is whether GST of 5% is applicable on Rs 500 or on Rs 425.

In most cases, Swiggy and Zomato have arrangements with banks. Insiders say this arrangement could be considered “barter” for the promotion of banking services or credit cards.

The tax department is scrutinising whether these are “barter” agreements between Swiggy and Zomato. Nothing is free under GST, and even barter is taxed.

“While barter transactions are subject to levy under GST, all transactions may not fall within barter and have tax implications on both legs. For instance, the coupon discount recovered by an ECO will completely depend on the facts, nature of the transaction, and intention of the service to be provided, ” said Abhishek A Rastogi, Partner at Khaitan & Co.

Zomato refused to comment on the story. Swiggy did not respond to an ET query.

Tax experts point out that similar discounts are also offered if customers order above a particular threshold or from a particular restaurant.

Even here, the tax department is set to scrutinise whether any money is being paid by restaurants for such promotion. If not, then it will be scrutinised whether there is barter involved.

Tax experts say that there is also a complication around the amount on which GST must be paid, even in situations where discounts are not offered.

In most cases, small restaurants or dhabas do not pay GST. If customers were to order food from these places, then the onus of GST would fall on the delivery apps.

“The liability to pay tax when the transaction is routed through an e-commerce operator is fastened to the ECO for the restaurant services and hence the question of double taxation does not arise. The hardship will be restricted to the unregistered service providers (dhabas) as these transactions will have to bear the brunt of taxes, ” said Rastogi.

There is already a complexity around how tips given to delivery boys, surge fees, delivery fees and packaging charges charged to customers will be treated under the GST framework, ET first reported on October 4.

Both companies are also worried about the indirect tax complications around the other fees they charge to customers.

Speaking to ET, a person with direct knowledge of the matter said, “This point (GST on surge fee, delivery cost, etc) was being discussed. The company is looking to charge 18% GST instead of 5% GST on this cost, so that we can avail the input tax credit. ”

Restaurants are charged 5% GST, but they do not get an input tax credit on the amount. An input tax credit is basically GST paid on input services or raw materials that can be set off against a certain kind of future tax liability.

This means that the GST paid becomes pure cost. This would also be the case for Swiggy and Zomato if they paid 5% GST.

“The food delivery platforms have huge costs in terms of technology and rent, and they would want an input tax credit. The thinking is that the tax department too would not take objection when they are paying 18% GST instead of 5%, ” ET reported.