Come Friday, the GST Council will gather for what will be the first face-to-face meeting since the start of the COVID-19 pandemic. On the agenda are rate revisions on items ranging from windmills, solar power devices, select medicines, carbonated drinks and more.
Another interesting item on the agenda are food delivery apps like Zomato and Swiggy. Apart from rate revision, another issue that could be discussed is the potential inclusion of petrol and diesel under the GST regime. Sources say the GST Council Secretariat has asked the council to look into the issue. The move comes more than 2 months after the Kerala High Court had called for a discussion on including petroleum products under the GST ambit.
To discuss this, CNBC-TV18’s Shereen Bhan spoke to Rohan Shah, tax expert and Pratik Jain, Partner at Price Waterhouse & Co LLP.
On taxing the likes of Zomato and Swiggy, Jain said, “Let me clarify that Zomato and Swiggy were already paying tax on the commission that they were getting at 18 percent. Now what is being proposed, it looks like that just like cab aggregators, they will be liable to pay on behalf of the restaurants. So restaurants who are listed on these apps will not pay tax and Zomato and Swiggy in this example, will pay tax on their behalf just like cab aggregators. So it only means that the compliance burden is shifted to them."
"Of course, it will lead to some complications as to how will they get input credit and all of those things, but it is not as if they are made to pay tax now, which they were not paying.”
“The only issue there is that today the small restaurants with less than Rs 20 lakh rupees of turnover are not liable at all. If we shift the liability to the apps, then even them, effectively, they will have to pay GST or whatever they are charging will be subjective to GST. So that is one issue that the small restaurants will have. But it seems that the government is concerned about maybe a tax evasion by small restaurants and so on so forth and they feel that shifting the liability here will increase the revenues.”
Shah said, “Certainly the footprint of the tax is going to be wider. Because the amendment that you are seeking to bring in specifically seeks to bring in the Swiggy, Zomato and the like. So as Pratik said, tax has already being discharged, what you are trying to do is to maybe create a nodal point of accountability."
"Therefore, irrespective of the size of the restaurant, irrespective of what the delivery is, because this aggregator now becomes responsible, your situation is you have certainty of tax collection. Nothing is going to pass through in the delivery mode, which is not taxable. Quite clearly this is now a significant part of the service sector and you are creating an ability to go and make one of or one or more of the nodal players responsible for the tax.”
On capacity-based taxation Jain said, “If we just see the historical experience of trying to tax based on capacity, and, you know, it was tried in excise, pretty much a disaster, and led to quite a lot of litigation."
"Just on the basis that you have identified in GST, a certain taxable event, that taxable event is supply, every time we make a deviation, to bring about some new approach to that taxation in this case, let us say capacity, we are severely deviating from what is the central basis for the taxation of GST and every time we make an exception, we are really going away from this whole situation of one nation, one tax, because classically, you are creating category within a category.”
Shah said, “A classic GST regime would should mean that you tax value-added, not necessarily any other thing, it should not be based on price, it should not be based on MRP it should not be based on the size, it should not be based on the capacity. But what happens is that in some cases with perhaps it has being talked about maybe some of the tobacco products and things like that it is very difficult to track the supply chain. One will have to see whether these recommendations are accepted or not, not ideal from our classical GST standpoint, but again, easy to administer.”
On inclusion of petrol and diesel, Shah said there is a lot of compulsion for the government at this point in time to not include particularly the passenger fuels like petrol and diesel.
"I see a ray of hope for things like natural gas and emission turbine fuel perhaps in next year and so. I think we are far away from including petrol and diesel in the GST regime for various reasons.”
For full interview, watch accompanying video...