GST on delivery fees: Swiggy, Zomato stare at higher costs
What's the story
The GST Council has decided to impose an 18% Goods and Services Tax on delivery fees charged by food delivery and quick commerce companies. The decision will have a major impact on firms like Zomato, Swiggy, and Blinkit. Until now, these companies had avoided GST on delivery fees by treating them as pass-through charges instead of revenue. The new rule comes into effect from September 22.
Cost implications
Increased costs could pressure profit margins
Morgan Stanley analysts estimate that the new tax could increase costs by around ₹2 per order for Zomato's food delivery business, and even more for Swiggy. The average customer delivery fee is currently between ₹11-12 for Zomato and about ₹14.5 per transaction for Swiggy. This additional cost burden could put pressure on profit margins in an industry that has become a major consumption driver in India's digital economy.
Investor response
Market reaction and analyst views
The stock markets reacted to the GST announcement with Swiggy shares falling 1.5% and Zomato's parent company, Eternal, ending nearly flat. Jefferies called the GST levy "a slight negative for Eternal and Swiggy," but stressed that "this should be a pass-through to the user." Morgan Stanley also thinks companies can pass this cost back onto consumers, given the current industry structure.
Tax clarification
Potential resolution of past GST dues issues
The new GST notification could also resolve a major overhang for the sector. Companies have been facing demands from various state governments on GST dues on past delivery services. The latest notification creates "a possibility of resolution on past cases over time," although Morgan Stanley warned this could be more complicated as cases are pending at the state levels.