The Goods and Services Tax (GST) Council has made a significant decision that could impact major food delivery platforms in India. Zomato and Swiggy , two of the country's leading food delivery services, will now be required to pay 18% GST on delivery fees under section 9(5) of the CGST Act.

New Tax Implications

The GST Council's decision brings local e-commerce delivery services under the tax net, potentially affecting the cost structure of these platforms. Previously, GST was not consistently applied to delivery fees, especially when considered a pass-through to delivery personnel.

Impact on Zomato and Swiggy

For Zomato, the impact could be substantial:

• Current food delivery customer fee: Rs 11.00-12.00 per order
• Potential GST impact: Rs 2.00 per order

Swiggy might face an even larger impact:

• Current delivery fee: Approximately Rs 14.50 per order
• Potential GST impact: Rs 2.60 per order

Differential Impact on Subsidiaries

Interestingly, the impact varies for subsidiaries of these companies:

• Zomato-owned Blinkit: No new incremental impact expected as it already collected GST on delivery fees.
• Swiggy Instamart:
  • Current delivery fee component: Rs 4.00 per order
  • Potential GST impact: Rs 0.80 per order

Financial Implications

Morgan Stanley, in its analysis, notes that this GST change could have two potential outcomes:

1. Hurt profitability if companies choose to absorb the cost
2. Impact demand if the additional cost is passed on to consumers

Resolution of Past GST Demands

Both Zomato and Swiggy have faced GST demands from various states regarding past delivery services. The new notification may help in resolving these cases over time, providing clarity on the tax structure for food delivery services.

Industry Outlook

This development marks a significant shift in the taxation landscape for food delivery platforms in India. As companies grapple with the new tax implications, it remains to be seen how they will adjust their pricing strategies and operational models to maintain profitability while ensuring customer satisfaction.

The food delivery sector, which has seen substantial growth in recent years, particularly during the pandemic, may need to reassess its financial projections in light of these new tax obligations. The coming months will likely reveal how Zomato, Swiggy, and other players in the industry adapt to this regulatory change.

In a move that could impact both consumers and the competitive landscape of the food delivery industry, Swiggy has implemented its third consecutive platform fee increase within a span of just three weeks. The latest adjustment sees the platform fee rise to Rs 15, signaling a series of rapid changes in the company's pricing strategy.

Consecutive Fee Adjustments

Swiggy, one of India's leading food delivery platforms, has been actively modifying its fee structure in recent weeks. This latest increase to Rs 15 represents the third such adjustment in less than a month, indicating a potentially significant shift in the company's approach to revenue generation and market positioning.

Implications for the Food Delivery Ecosystem

The repeated fee hikes by Swiggy could have several implications:

1. Consumer Impact: Frequent increases in platform fees may lead to higher overall costs for consumers, potentially affecting order frequency and customer loyalty.

2. Competitive Dynamics: As Swiggy adjusts its fees, it may influence the strategies of other players in the food delivery market, potentially leading to industry-wide changes in pricing models.

3. Restaurant Partners: The fee structure changes could also impact Swiggy's relationships with its restaurant partners, as it may affect the overall cost structure of food delivery services.

4. Profitability Focus: These consecutive fee increases might indicate Swiggy's increased focus on improving its financial metrics and moving towards profitability, a key concern for many players in the food delivery sector.

While Swiggy implements these changes, it remains to be seen how competitors will respond and how the broader food delivery market in India will evolve in the face of these pricing adjustments. As the situation develops, both consumers and industry watchers will be keenly observing the impact of these fee hikes on Swiggy's market position and the overall dynamics of the food delivery ecosystem.