This was in the offing and on Friday, 17 Sep. ‘21, it was confirmed. The GST council which consists of the Union Finance Minister and her State Counterparts met for the 45th time (since it’s inception) in 2017 at Lucknow to discuss and decide the taxation on various products and services. Notable among them is that there is a new GST levy that would kick in to food that is ordered on FoodTech platforms such as Zomato and Swiggy by consumers and delivered at their doorstep by the respective partners. The good news is that the GST on this “service” is capped at 5%, if that brings any solace to the beleaguered Food & Beverage vertical of the Retail Industry. The new GST regime for this vertical would kick in from Jan ‘22 onwards, the FM said while addressing the media.
It has been a much debated one whether such a GST was required, especially when the country is reeling under the impact of the Covid-19 pandemic. But the Government seems to think otherwise. While the mid-level F&B businesses across India have been hit very badly due to lack of footfalls dining at their premises, the online order management platforms seem to have been making a killing ever since the first Unlock began in May ‘21. while 1,000s of restaurants have shut down across India leaving as many F&B Entrepreneurs bankrupt staring at a grim future, Zomato went ahead with its IPO while rival Swiggy’s valuation zoomed than ever before during the past 12 months. Someone’s loss is someone else’s gain always, isn’t it.
Interestingly, both Swiggy and Zomato which were offering “Free Delivery” in the past moved to a paid-model to cash in on the Lockdown coupled with fear in the minds of consumers who wanted to indulge in exotic fare but while not risking themselves visiting crowded places such as neighbourhood dining joints. Customers have not gotten used to paying Rs. 30-60 per delivery which has swelled the profitability of the players, while also demanding more commissions from the restaurant partners, much to their chagrin. With the easing of the spread of the pandemic, a near-normalcy returning in the eating out space with crowded restaurants during the week as well as weekends, the party may be getting over soon for the so called “FoodTech” companies which claim to be more than delivery partners. The incremental commissions they ask from the outlets is because their AI provides more meaningful date such as people of which Pincodes savour Biryani, on which days of the week mostly and at what hours of the day – with late nights peaking in parts of South West Bangalore, HiTech city in Hyderabad and central / suburban areas of Noida.
Restaurants are not impressed. “We have been in this business for the past 17 years. We had one store in 2008, now we have 14 branches across the city and we really don’t need any insights from Zomato or Swiggy on how to run the business”, said Bhaskar Reddy, manager at a top restaurant chain in Hyderabad which is famous for its Kebabs. “We observe customers on what they order, when they order and so on and can easily understand their preferences”, quips Bhaskar citing the Menu on the App which has an inflated pricing compared to the one at the outlet. He says many customers who are now returning to the offline outlets are complaining that they were paying extra all along while ordering online and are surprised by the tactics of the food delivery players. “We told them that our pricing is almost the same as what it was before pandemic and the Management is clear not to hike”.
Apart from Food delivery, what seems to be brewing in the Offices of power is whether to charge a similar GST on e-commerce deliveries by Amazon Flipkart and others. Currently, there is no service GST applicable on the online orders. The e-commerce platforms are already having an undue advantage of offering lower prices to customers by deriving top margins from brands and sellers who use their platforms. They merely act as a reselling agency if not a delivery partner at best. There has already been accusation by CAIT, the top body of retailers in the country basing allegations of inappropriate business practices undertaken by the online companies. The government is said to be on a wait and watch mode, with 4 States headed for Elections in 2022 and the national General Elections in 2023. The decision makers at the helm are very clear, as per sources, that they do not want to antagonise the larger population by offering preferential treatment to VC-funded e-commerce companies and is said to be working on ways to contain their growth. If that’s the case, with GST kicking in to all e-commerce deliveries in India, the party would come to an abrupt end, with an estimated USD 35-40 billion invested in to e-commerce in India by foreign entities.