Zomato, a leading food delivery service, recently revealed that it has received a show cause notice of Rs 401.7 crore from the Directorate General of GST Intelligence (DGGI) for unpaid taxes on delivery charges collected from customers. The notice has raised questions about the company’s tax liabilities and the broader taxation framework for food delivery platforms.
Show Cause Notice and Zomato’s Response
According to Zomato’s regulatory filing, the show cause notice pertains to unpaid taxes on delivery charges accumulated from customers between October 29, 2019, and March 31, 2022. Zomato clarified that it should not be held liable for penalties during this period as the funds were collected “on behalf of the delivery partners.” The company asserted that the delivery partners, not Zomato, provided services to customers based on contractual terms.
Zomato announced its intention to submit a suitable response to the notice, emphasizing that, as of now, no order has been passed. The company believes it has a strong case on merit and will defend its position in response to the DGGI.
GST Notices to Food Delivery Platforms
This notice from DGGI follows reports of GST notices worth Rs 750 crore sent to both Zomato and Swiggy. The tax authorities are seeking Rs 400 crore from Zomato and Rs 350 crore from Swiggy. The notices highlight the complexities surrounding the taxation of delivery charges and the evolving regulatory landscape for online food delivery platforms.
Financial Performance of Zomato
Financially, Zomato reported its second consecutive quarter of consolidated profits, reaching Rs 36 crore in Q2FY24. This represents a significant increase from the Rs 2 crore recorded in the previous quarter. In the same period last year, the company reported a loss of Rs 251 crore.
Despite a challenging economic environment, Zomato’s revenue from operations soared by 71% year-on-year to Rs 2,848 crore in Q2. This impressive growth is a testament to the platform’s resilience and adaptability in the competitive food delivery sector.
The show cause notice and the broader scrutiny of GST payments on delivery charges underscore the challenges faced by food delivery platforms in navigating complex tax regulations. Zomato’s commitment to providing a robust response reflects the company’s dedication to addressing regulatory concerns while maintaining its financial performance amid a changing landscape. As the industry evolves, clarity on taxation issues will be crucial for the sustainable growth of food delivery platforms in India.