Zomato, Swiggy Face RS 180 200 CR Gst burden because the delivery costs attract 18% sample; Will your food bills increase?
The two largest food delivery platforms in India, Zomato and Swiggy are preparing for a significant financial blow after the TPS council said that the delivery costs collected by them will now attract a tax on products and services (TPS) of 18%. Clarification, rooted in article 9 (5) of the Central GST Act, requires that digital platforms are likely to collect and put taxes in the name of service providers in specific sectors, including food delivery.
This long -awaited clarification puts an end to the debate on the question of whether the platforms were responsible for the TPS on the delivery costs. Analysts believe that the decision could impose an additional tax burden of approximately Rs 180-200 crosses the two combined companies. The Morgan Stanley brokerage observed that the move further complicates the income models of food technology platforms, which are already faced with challenges balancing the affordability of customers with the remuneration of delivery partners.
For Zomato and Swiggy, the timing is critical. The two companies recently declared operating profits – Zomato at Rs 451 crosses during the April -June quarter and the food delivery activity from SWIGGY to Rs 192 crore. But the responsibility of the additional GST should put pressure on the margins and strength adjustments in commercial models. The platforms had previously absorbed the gap between customer delivery costs and the payments of delivery partners as part of their growth strategy, often renouncing the delivery costs to increase order volumes.
To manage the budgetary impact, the two companies plan to transmit a share of the burden to consumers and delivery partners, an Economic Times report. “This will be partly transmitted to delivery workers and will probably reduce their income to the immediate duration,” confirmed a senior Zomato executive. A Swiggy manager has echoed similar plans, saying that the company would transfer part of the tax costs.
Modest impact, let’s say analysts
Despite these concerns, some analysts expect the overall impact to remain modest. JM Financial, in a recent note, said that this decision should have a negligible effect on Zomato and Swiggy belonging to the eternal. The brokerage house stressed that in the delivery of food, almost two thirds of the order volumes, already see delivery costs. In Quick Commerce, Blinkit, belonging to Zomato, already applies the 18% TPS on delivery costs, while Instamart de Swiggy renounces most orders.
In addition, the brokerage house stressed that food technology platforms have historically managed to pass the costs related to TPS for consumers in various categories of costs. The recent increases in platform fees by the two companies reinforce this trend. Swiggy, for example, has increased its platform fees three times in as many weeks – from Rs 12 to Rs 13, then to Rs 14, and more recently to Rs 15 per order, including TPS. Zomato also increased its RS platform fees from 11.8 to Rs 14.75 per order, including TPS.
At the same time, the two companies have recently lowered the minimum control value (MOV) for orders based on the subscription of RS 199 to RS 99. JM Financial noted that if this decision can increase control volumes in a low macro environment, it reduces income per order and shrinks the collections of delivery costs. The recent increases in platform fees seem designed to compensate for this impact.
“The demand has remained largely inelastic to the increases in platform fees so far, which embraces food technology platforms to undertake such increases. This supports their adjusted Ebitda margins, ”observed JM Financial.
For the future, the brokerage projects that Zomato and Swiggy will deliver around 110 crushes and 80 waves of food delivery orders, respectively, by FY27. He believes that the costs of expenses, excluding the TPS, could have raised the adjusted Ebitda of Rs 270 crore for zomato and Rs 200 crores for Swiggy. However, with the reduction of MOV, the rate of flow can be lower than that provided.
