NRAI expresses concerns over GST rules making food delivery aggregators liable to tax

The National Restaurant Association of India (NRAI) has raised concerns about the new GST rules that make aggregators liable to pay tax. The new GST rules, which come into effect from January 1, make food delivery apps like Zomato and Swiggy, liable to pay 5% tax on restaurant services provided by them.

The association says this will primarily hit unorganized players who otherwise may not have been fully GST compliant. “These players, who were earning under Rs 20 lakh per annum, were not filing GST in the past and this will bring them into the tax ambit,” NRAI said.

It highlighted that the new norms will force them to change their system in the middle of the financial year. NRAI said the restaurants will continue to raise their own tax invoices for dine-ins, takeaways and own delivery sales.

Shah Miftaur Rahman, Co-Founder and CFO at WoW Momo, said there will be a change in invoicing structure for orders completed through restaurant aggregators, and dine-in and takeaway orders will remain the same for restaurants. “If a pizza is being billed for dine-in and takeaway, there has to be tax captured in the invoice. But if the delivery is done through aggregators, it will be calculated without tax.” Rahman said the delivery fee and packaging fee will remain unchanged.

Kabir Suri, president of NRAI, said the government’s intent is to plug holes in the GST leakage. “The government has realized that some restaurants or cloud kitchens are operating primarily through restaurant aggregators, and so it is best to give the aggregators the responsibility of the GST collected from that sale,” he said. “Since the sale is happening through their portal, it will bring these restaurants into the tax ambit.”

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NRAI described this move as irksome for organized players who are already compliant with the law. “It’s fundamentally bringing the unorganized players that are using the portals to pay GST. For the organized player, it is simply just more compliance. Point of sale or billing systems being changed will mean more manual labor in reconciling internal operations and also with the third party,” Suri explained.

The association highlighted that the restaurant industry has an annual turnover of Rs 4 lakh crore and is the third-largest player after retail and insurance in the service segment.