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Swiggy and Zomato to absorb tax load carried by restaurants under new GST structure

In India, the taxation of digital services has grown with the explosion of internet access since the mid-2010s.

The Goods and Services Tax Council on September 17 recommended that food delivery apps like Swiggy and Zomato should be taxed instead of the restaurants that prepare and pack the food. The council also recommended that cab aggregators like Uber and Ola should be taxed:

E Commerce Operators are being made liable to pay tax on following services provided through them

  1. transport of passengers, by any type of motor vehicles through it [w.e.f. 1st January, 2022]
  2. restaurant services provided through it with some exceptions [w.e.f. 1st January, 2022] — GST Council press release

The move would essentially shift the burden of taxation from restaurants to the delivery company. It’s not clear how this would work in practice, though, as depending on how formally established a restaurant is, it may already be paying taxes on food it is distributing through aggregators. Will such restaurants uniformly reduce prices, or will they pocket the extra revenue and charge differentially on online platforms? We’ll find out starting January. The taxation of Uber and Ola is also going to be interesting to follow — as Inc42 reported, this tax is currently only charged on the part of the ride fare that goes to the company, and not to the driver. If the tax grows wider and potentially requires drivers to start paying out from their incomes, that could drive ridesharing prices up in India.

Digital taxation in India

In India, taxation of digital services has grown with the explosion of internet access since the mid-2010s. A blanket service tax of 15% was levied on practically all digital products from apps to content subscriptions to e-books in December 2016. This tax is now levied as GST, under the 18% slab. The digital services industry, largely untaxed in India beforehand, has silently complied for the most part.

But a much smaller levy than this caused much consternation: an “Equalisation Levy” of 2% was announced by the Indian government, targeting only foreign sellers. Companies like Netflix and Google would have to pay 2% on their incomes from India as a levy, in a supposed bid to level the playing field, and chipping away at companies’ already low per-user revenue in the country.

The US government got involved. The United States Trade Representative launched an investigation, where India defended the levy, and eventually published a report saying that the tax was discriminating against American businesses. Lobby groups representing American tech companies protested, asking for the changes to be pushed back. The US announced and suspended retaliatory tariffs simultaneously, reasoning that it would continue pursuing the matter in the G20 and the OECD.

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I cover the digital content ecosystem and telecom for MediaNama.

MediaNama’s mission is to help build a digital ecosystem which is open, fair, global and competitive.



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