With no input credit, restaurants spike price on food delivery sites

Withdrawal of input tax credit (ITC) from restaurants and reduction of GST on dining have caused things to go haywire for them. After the GST implementation, the tax rates for restaurants were increased to 18 per cent (AC restaurant) and 12 per cent (Non-AC restaurant) last year.

However, later in November, the government reduced the rates to a uniform 5 per cent, along with withdrawing input tax credit (ITC). And since then, restaurants have been struggling to draw diners.

Following the slump in footfalls, restaurants have started charging higher prices (in form of commission) from food delivery apps including Zomato, Swiggy, and Foodpanda.

While others are negotiating a commission cut on 20 per cent overall charges, which include 18 per cent and 2 per cent commission, levied by food delivery platforms.

The matter has reached to the government as the online food delivery companies have represented for a rate reduction or to allow ITC to restaurants.

Experts believe that the current taxation policy, in which online food delivery platforms charge 18 per cent from restaurants and the latter get no credit returns, will hamper the growth of the sector in the country.

Online food delivery sector has grown manifold in the past few years.

Recently, Entrackr reported food delivery major Swiggy crossed 10 million monthly delivery mark. This was an almost 2X surge in terms of monthly volume within six months. The Bengaluru-ased company had achieved 5 million order mark in December last year.

Currently, the Tencent-backed company does about 330,000 to 350,000 order on a daily basis.

In comparison, its arch-rival Zomato delivers about 7 million orders every month. After touching $100 million revenue run rate in ten years, Zomato expects to record next 100 per cent growth in revenue within a year time.

The development was first reported by Business Standard.