GST Fitment Committee Reviews Taxability of Delivery Charges by Food Delivery Apps
Introduction
The Goods and Services Tax (GST) Fitment Committee is reviewing the taxability of delivery charges imposed by food delivery platforms like Swiggy and Zomato. This review follows the Directorate General of GST Intelligence’s (DGGI) notices questioning the classification and GST rates applied to these charges. With GST demand notices of ₹400 crore for Zomato and ₹350 crore for Swiggy, the decision will significantly impact businesses and consumers.
Background of the Issue
In 2022, the DGGI issued notices asserting that delivery charges, often bundled with food supplies, should be taxed at the higher rate of 18%. The notices, covering transactions from July 2017 to March 2023, sparked industry-wide debates.
The central question revolves around the classification of delivery charges. Should they be taxed separately at a lower rate, or bundled with food delivery and taxed at the same rate as the food?
Legal Ambiguity in GST Classification
Two key sections of the Central Goods and Services Tax (CGST) Act, 2017, underpin this debate:
- Section 7(1)(a): Defines the supply of goods and services, which tax officials argue includes delivery charges as part of food delivery.
- Section 9: Specifies GST application on the supply of goods and services, suggesting delivery charges may be incidental to food delivery.
While tax officials favor higher GST rates, stakeholders argue that this approach unfairly burdens businesses and consumers.
Implications of Current Tax Policies
- For Businesses: Higher taxes could increase operational costs, reducing profitability and hindering growth.
- For Consumers: Platforms passing on these costs would make food delivery more expensive, deterring usage.
- For the Government: Clear classifications could improve compliance and reduce litigation.
Role of the GST Fitment Committee
The GST Fitment Committee is advising on policy recommendations to address this ambiguity. While unable to overturn the DGGI’s notices, the committee’s suggestions could lead to consistent tax treatment.
Steps Taken So Far:
- Consultations with stakeholders to gather insights.
- Policy reviews to analyze existing laws and precedents.
- Drafting recommendations for future clarity.
These recommendations may be presented to the GST Council for approval.
Upcoming 55th GST Council Meeting
The GST Council will meet on December 21, 2024, in Jaisalmer, Rajasthan. Whether the taxability of delivery charges will be included in the agenda remains uncertain, but its resolution could have widespread ramifications.
Potential Outcomes of the Review
- Revised GST Classification: A separate classification for delivery charges could lower tax rates for businesses and consumers.
- Policy Update: A decision could set a precedent for similar bundled services.
- Escalation: If unresolved, the matter may escalate to higher authorities.
Industry Reactions
Food delivery platforms argue that delivery charges are standalone services and should not be taxed at the same rate as food supplies. Consumer advocacy groups have also highlighted the need for fair tax policies that do not overburden end-users.
Impact on the Consumer Market
If higher GST rates on delivery charges are enforced:
- Delivery costs could increase significantly.
- Consumer spending on food delivery services might decline.
- Smaller players in the market could face difficulties in staying competitive.
Conversely, a favorable decision could stabilize the market and encourage sector growth.
Conclusion
The GST Fitment Committee’s review of delivery charge taxability is critical for addressing ambiguities in India’s GST framework. The outcome of the 55th GST Council meeting will influence the food delivery industry, government revenues, and consumer behavior.
A transparent resolution is essential to support business growth, protect consumer interests, and ensure tax compliance.
