What will be the impact of the 5% GST on food delivery

In its forthcoming meeting on 17th September, the GST Council is likely to consider a 5% tax on food delivery. This GST will be levied on food delivery apps like Swiggy, Zomato and Dunzo instead of levying the GST on the restaurants. While there is no confirmation, this proposal is likely to be considered by the GST Council in its 17-Sep meeting.

According to inputs from experts, this is unlikely to make a big impact on end customers as the GST incidence merely shifts from the restaurant to the food delivery apps like Zomato or Swiggy. For the government, this could fill a huge gap as many of the restaurants that supply food via apps, are too small and are not GST registered. Thus, the leakages in GST collections get plugged this way.

Currently, apps like Zomato and Swiggy are registered as Tax Collectors at Source (TCS). This creates a revenue loss for the government as a lot of restaurants that are not registered with GST also supply through these aggregators. The estimate is that the government is losing revenue of nearly Rs.2,000 crore due to under-reporting which will be plugged. 

Will it impact the food aggregator stocks?

Currently, Zomato is the only listed food delivery stock. However, this is unlikely to impact demand as the per unit impact would be very small. Also, players like Zomato and Swiggy have a huge manoeuvring space, which is used to pass on discounts. Mostly, the added cost will get passed on partially and adjusted partially by these aggregators. The net impact would be minimal.

One view is that the council may put this on hold as the IPO markets are likely to see a slew of digital IPOs in this year and the government would not want to look digital-unfriendly.  If one goes by the price reaction of Zomato on 16th September, investors appear to have taken it in the stride.