Zomato Shares Are Trading Flat After Tax Authorities Issued a Notice to Food Delivery Companies

Zomato shares closed the session at INR 115.25 as of the previous day’s (November 22) close.

The stock was trading at INR 114 as of 9:20 a.m. on November 23.

Zomato and Swiggy have allegedly got warnings for a total goods and services tax (GST) of INR 1,000 Cr.

Zomato’s stock began flat on Thursday (November 23), following news that meal delivery aggregators Zomato and Swiggy had been slapped with tax notifications for nonpayment.

Zomato shares closed the session at INR 115.25 as of the previous day’s (November 22) close. The stock was trading at INR 114 as of 9:20 a.m. on November 23.

In January 2022, the Centre added’restaurant services’ and cloud kitchens to Section 9(5) of the CGST Act, 2017, requiring Swiggy and Zomato to pay 5% GST on the’restaurant services’ they provide.

Zomato and Swiggy have allegedly got letters for a total goods and services tax (GST) of roughly INR 1,000 Cr, as the tax authorities now consider delivery costs collected by these companies to be their revenue.

Since they began offering meal delivery, both food delivery platforms have been ordered to pay INR 500 Cr, which is the 18% tax charged on the total amount received as delivery costs.

Swiggy and Zomato’s delivery prices have long been a source of contention, attracting criticism from a variety of sources.

Swiggy pioneered the practice of charging food delivery fees in 2016. Zomato followed suit by instituting delivery fees.

After establishing a standard for delivery prices, Zomato launched a reward program, currently known as Zomato Gold. Customers can avoid delivery fees by subscribing to a monthly subscription that also provides extra benefits.

Swiggy created Swiggy One in a similar fashion, duplicating the notion of eliminating delivery expenses through a membership model, backed by added advantages.

Zomato and Swiggy distribute between 1.8 million and 2 million orders every day across the country. The imposition of a new Goods and Services Tax (GST) might jeopardize their financial flow.

However, both portals have begun to levy a platform fee on orders, with rates ranging from INR 2 to INR 5 each order. Notably, this price applies to all consumers, regardless of whether they are members of any special reward club.

Meanwhile, Zomato announced its second straight profitable quarter, with earnings after tax increasing to INR 36 Cr in the fiscal year 2023-24 (FY24). This was an 18X increase over the previous quarter’s PAT of INR 2 Cr.