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Online food aggregators such as Zomato, Swiggy and UberEats are facing a curious issue in goods and services tax (GST) compliance, prompting a review.
The aggregators are unable to show tax collected at source (TCS) from restaurants using their platform, thereby preventing the partner restaurants from claiming credit. The government has referred the matter to a law committee under the GST Council. “The industry has represented the issue... It will be examined by the law committee,” said a government official privy to the developments. Zomato, Swiggy and UberEats declined to comment on the issue.
The glitch stems from a bar on goods and services composition dealers from registering with ecommerce platforms. This prevents food aggregators from filing TCS collected from partner eateries — that are also under the composition scheme — on the GSTN portal. However, restaurants enjoy a carveout under the composition scheme are are thus permitted to register with ecommerce platforms. But with their TCS not being recorded on the GSTN portal, the restaurants cannot claim credit or refund. This particularly hits small restaurants’ cash flow.
The composition scheme allows small businesses to opt for a fixed rate of tax — 5% in case of restaurants — on their turnover, without the tedious compliance and paperwork.
The government is now examining if a carveout needs to be created for small restaurants under the TCS regime, said the official quoted above. The GSTN is also working on the online utility to facilitate this.
Tax experts say a mechanism needs to be evolved soon. “The GST Council needs to take a call either to remove the requirement of TCS on restaurant services for supplies by composition dealers or provide a mechanism to allow the ecommerce operator to file a return for TCS deducted in such cases. Restaurants should be able to claim TCS credit,” said Bipin Sapra, partner, tax and regulatory services, indirect tax, EY.
Some say it may be imperative to relook at the whole TCS itself. “While this seems like a technical issue that can be resolved easily, from a policy standpoint, the TCS mechanism needs a relook. It’s leading to unwarranted compliance issues and preventing small businesses, particularly those supplying goods, from transacting on ecommerce platform,” said Pratik Jain, indirect taxes leader, PwC.
Ecommerce players are mandated to deduct 1% tax (TCS) on payments made to their suppliers under GST regime. The provision came into effect from October 1, 2018.