India's GST Council, led by the federal finance minister, is considering reducing the tax on food delivery charges by e-commerce operators from 18% to 5%, according to CNBC-TV18.

If implemented, the tax reduction could take effect on January 1, 2022. However, food delivery platforms like Zomato and Swiggy would not be able to claim tax credits. This proposal comes after India's tax department directed Zomato to pay 8.04 billion rupees in taxes and penalties for unpaid taxes between 2019 and 2022.

What could be the rationale behind the tax cut?

Industry Recovery: Lower GST can help food delivery platforms recover post-pandemic by reducing operating costs, allowing businesses to pass on savings to consumers.
E-commerce Growth: The tax cut could stimulate the food delivery sector, encouraging more consumer use and market expansion.
Support for SMEs: Smaller restaurants and local vendors can benefit from reduced costs, making it more affordable for them to engage with delivery platforms.
Consumer Affordability: Lower delivery charges can make services more accessible to a broader consumer base.
Encouraging Compliance: A tax cut may encourage companies to comply with tax regulations while reducing administrative burdens.

Potential Impact on Businesses and Consumers

The proposed tax cut on food delivery charges will likely benefit both the consumers and businesses. For businesses, the lower tax burden is likely to reduce operational costs which will improve profitability. Smaller restaurants could also benefit, as reduced delivery costs would make it easier for them to participate in India's growing digital food market. For consumers, the reduction in GST could lead to lower delivery fees, making food delivery services more affordable and accessible. This could increase the frequency of orders, especially among price-sensitive consumers.

Economic Implications

The proposed tax cut will have significant economic implications for the food delivery industry. It will reduce the pressure of high operational costs on businesses imposed by intense competition between platforms like Swiggy and Zomato. This will enable platforms to invest in innovation and maintain profitability. Additionally, the food delivery sector's growth supports jobs and stimulates the economy. Regulatory changes, such as this tax cut, may help stabilize the market and strengthen sustainable growth.

About Aakriti Bansal

I am an experienced journalist with a deep passion for uncovering the truth and sharing stories that matter. With years of expertise in covering a variety of topics, including current affairs, politics, and human interest stories. My work aims to inform, engage, and inspire readers around the world.