In a recent development, Zomato’s shares experienced a downturn of over 4% on Thursday morning, triggered by a substantial Rs 400 crore show-cause notice issued by the Goods and Services Tax (GST) authorities. The notice specifically targets the food delivery giant for unpaid dues, specifically categorized as “delivery charges,” placing Zomato under intense scrutiny. The Directorate General of GST Intelligence (DGGI) had previously directed its attention towards both Zomato and its competitor, Swiggy, issuing demand notices for pending GST dues. Zomato now faces a significant demand amounting to over Rs 400 crore, further intensifying the challenges for the company.
This regulatory intervention by the GST authorities comes as part of a broader effort to ensure compliance within the rapidly growing food delivery sector. In a parallel development, Swiggy has been served with a demand notice requiring them to clear dues amounting to approximately Rs 350 crore. The market’s response to Zomato’s downturn reflects the seriousness of the situation, with investors closely monitoring the company’s ability to address the outstanding GST obligations. As both Zomato and Swiggy navigate these regulatory challenges, the broader implications for the food delivery industry remain to be seen, emphasizing the significance of regulatory compliance in sustaining growth and investor confidence.
Zomato, has responded by stating it isn’t responsible for tax payments on delivery charges. The company contends that these charges are collected on behalf of their delivery partners, as per their contractual agreements. Zomato clarified to regulatory authorities that, according to these contracts, it is the delivery partners who offer services to customers, not Zomato itself. The company is getting ready to submit a detailed response to the show-cause notice. Zomato is firm in its belief that it is not liable for the mentioned tax payment and has emphasized that no official order has been issued so far. The company remains confident in its strong position on the matter.
This development follows a similar action against Swiggy, Zomato’s competitor, as both companies received GST notices last month concerning delivery charges. As Zomato navigates this regulatory challenge, the market is keenly watching how the company addresses these concerns and the potential impact on the broader food delivery industry.
Zomato and Swiggy are stating that the ‘delivery charge’ is essentially a payment for the service provided by their delivery staff. In a recent update, Swiggy has adjusted its platform fee from Rs 2 to Rs 3 per food order. According to a spokesperson from Swiggy, this increase in the platform fee aligns with common practices seen in various service industries.
Zomato had previously raised its platform fee as well, moving it to Rs 3 per order from the initial Rs 2. This change has sparked conversations within the industry regarding the nature of delivery charges and how they are subject to taxation. Both food delivery giants are emphasizing that the ‘delivery charge’ corresponds to the service rendered by their delivery personnel. This shift in platform fees signals a broader trend within the industry and highlights ongoing discussions around the financial aspects of food delivery services. As these platforms adjust their fees, it remains to be seen how such changes will influence the dynamics of the competitive food delivery market and the perceptions of customers.
The effects of the negative news were seen on Zomato’s stock price which recently traded near it’s all time high, investors should maintain caution and do not create any further positions in the stock till the taxation issue gets sorted out, the news keeps the company on radar and any further negative sentiment would lead to lesser confidence in the company and hence investors will dilute their holdings. Zomato has been a reputed company since it started but the past few months have been rough on Zomato as the company is struggling to maintain it’s profitability and now such news is going to increase the fears of a downside in company’s growth trajectory.