Zomato Shares Open Flat After Tax Authorities Slap Notice To Food Delivery Firms

Zomato’s shares opened flat on Thursday (November 23), following reports that food delivery aggregators Zomato and Swiggy had been served tax notices over non-payment.

As of the previous day’s (November 22) closing, Zomato shares concluded the session at INR 115.25. As of 9:20 am on November 23, the stock was trading at INR 114.

In January 2022, the Centre added ‘restaurant services’ and cloud kitchens under the purview of Section 9(5) of the CGST Act, 2017, which led to the likes of Swiggy and Zomato paying 5% GST on ‘restaurant services’ they offer.

Zomato and Swiggy, the duo has reportedly received notices for a cumulative goods and services tax (GST) worth around INR 1,000 Cr, as the tax authorities now view delivery charges collected by these platforms as their revenue.

Both the food delivery platforms have been asked to pay INR 500 Cr each, which is the 18% tax levied on the total amount collected by them as delivery fees ever since they commenced offering food delivery.

The delivery fees charged by both Swiggy and Zomato has consistently been a subject of debate, drawing controversy from various viewpoints.

In 2016, Swiggy initiated the practice of charging food delivery fees. Following suit, Zomato also introduced delivery charges.

After creating a standard for delivery fees, Zomato introduced a loyalty program, now recognised as Zomato Gold. This programme allows customers to bypass delivery fees by subscribing to a monthly plan, which also includes additional perks.

In a similar manner, Swiggy also introduced Swiggy One, mirroring the concept of waiving delivery fees through a subscription model, accompanied by supplementary benefits.

Zomato and Swiggy deliver 1.8 Mn to 2 Mn orders per day across the country. The introduction of a new Goods and Services Tax (GST) could potentially disrupt their cash flow.

However, both platforms have started imposing a platform fee on orders, with charges varying between INR 2 and INR 5 per order. Notably, this fee applies universally to all customers, irrespective of whether they are subscribed to any specific loyalty programme.

Meanwhile, Zomato reported its second consecutive profitable quarter, with profit after tax surging to INR 36 Cr during the September quarter of the financial year 2023-24 (FY24). This was an 18X jump from PAT of INR 2 Cr in the preceding quarter.