The Goods and Service Tax Council may deliberate on including food delivery apps such as and Swiggy within the ambit of restaurant services and make them liable to pay the tax. Cloud kitchens may also be included within the ambit and be charged a 5% GST, as per the recommendations that the council could take up at its meeting on Friday.
The fitment committee, which comprises officers from various states that makes suggestions on tax rate changes, has recommended that the ecommerce operators supplying restaurant services on their platforms be notified as ecommerce aggregators in the same category as restaurant service, thus making it a supplier that has to pay GST.
“ECOs (ecommerce operators) such as Swiggy and Zomato may be made liable to pay GST on restaurant service supplied through them,” the committee said in its recommendations to the GST Council, according to people privy to the details.
The panel added that the Central GST Act would have to be amended to include restaurant services but said that restaurants within hotels having tariff of Rs 7,500 per day and upwards may be excluded. “This change may be given effect from January 1, 2022, so as to allow the ECOs time to make changes to their software etc,” the committee added.
Cloud kitchens may also be included under restaurant services and be charged a 5% GST without input tax credit, the fitment committee has recommended. “It may be clarified by way of a circular that services by way of serving of food, door delivery and take away by cloud kitchens/central kitchens are covered under ‘restaurant service’, and attract 5% GST without ITC,” the panel has further recommended.
The committee noted that while online food ordering through food delivery apps had increased during the pandemic, the government was not getting proportional revenue from taxes. It further noted that higher volume of food delivery was leading to higher tax evasion, especially in cases were the restaurants are not registered but have higher than the exempted threshold limit of Rs 20 lakh revenue a year.
At present, restaurants charge 5% GST without input tax credit on the supply of services including supply of food and beverages. Meanwhile, food aggregators such as Swiggy and Zomato are registered as tax collectors at source. The recommendation, if accepted, will bring down the GST for food delivery apps on a par with restaurants.
“This move will help the government cover smaller restaurants within the GST ambit and accordingly enhance the GST collections. However, on the flip side, smaller restaurants below the threshold, which do not have to pay GST currently, will have GST as an additional cost on their services,” said Abhishek Jain, tax partner at EY.
The restaurant and food delivery segment has been seeking a reduction in GST from 18% to 5% as consumers ordering food at home were paying more tax than those dining in on the same food and beverages since the dine-in rate of GST at the restaurant was 5%. The issue will be among several that may be taken up for discussion on September 17.