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GST effect: Small restaurants pulling away from online delivery services

LiveMint logoLiveMint 22-06-2017 Soumya Gupta

Mumbai: With new tax rules for e-commerce firms set to come in under the Goods and Services Tax regime, small restaurants and vendors are pulling away from online delivery start-ups.

In the GST regime, e-commerce firms will have to deduct tax collected at source (TCS) when they make payments to restaurants or vendors using their platform. This can deter smaller restaurants with lower sales volume from going online.

“Besides, these vendors will receive their payment after a TCS of 2% (1% each of Central GST and State GST) which will cause disruption in their working capital supply,” said Anita Rastogi, Partner, indirect tax at tax advisory firm PwC.

Under this arrangement, restaurants will be able to claim input tax credit and get a refund for the TCS that they paid. But until that refund arrives, that amount of working capital remains blocked for the restaurant.

Food delivery start-up Foodpanda said it has been talking to restaurants listed with it on how to manage this 2% deduction. “We have been speaking to restaurants, trying to convince them that it is good for them in the long term,” said Saurabh Kochhar, co-founder and chief executive of Foodpanda. “Some have agreed but some we will see. There is still time to go for GST implementation.”

Kochhar said his firm and others in the space have been lobbying with the government on the issue of TCS through the Federation of Indian Chambers of Commerce and Industry (FICCI).

“Aggregator models are best suited for smaller restaurants, vendors and businesses,” Kochhar said, adding that TCS would hit the process of bringing more and more restaurants on board. “We have not been bringing on very small hawkers or hole-in-the-wall sort of fast food makers,” he said.

“Businesses under the threshold limit for GST will be forced to register for the GST network simply for using e-commerce services,” said Rastogi. “This is a tax burden that many may not want to take.”

Restaurants say using online delivery also takes away the composition scheme of filing the GST.

“For restaurants with less than Rs75 lakh turnover, they are allowed a composition scheme which is a simplified form for GST and they will not have to do separate invoicing,” said Pradeep Jain, owner of Jain Sweets & Bhelpuri House at Kandivali in Mumbai. Jain is also the FSSAI chairperson of the Association of Indian Hotels and Restaurants (AHAR). “But if you are online (using online delivery service) there you cannot use this composition scheme,” he said, adding that this is only further deterring restaurants.

However, the association has been making representations to the government on this issue of online delivery along with other GST rates. These include the GST rate of 18% at AC restaurants, which is applicable even to restaurants which have bifurcated AC and non-AC seating.

“I have been told that restaurants in our association are waiting to see what happens,” Jain said. “There is too much uncertainty to make a decision yet.

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