GST on Delivery Charges Impacted Zomato’s Growth: Eternal CFO
The former Chief Financial Officer (CFO) of Zomato’s logistics arm, Eternal, stated that the imposition of Goods and Services Tax (GST) on delivery charges was a significant factor that negatively impacted the growth and business of food delivery platforms like Zomato.
Key Impact on the Business
- Increased Consumer Cost: The application of GST to the delivery fee directly increased the final cost borne by the consumer for every order. Since food delivery services are highly sensitive to price changes, this tax added friction to the consumer decision-making process.
- Discouraging Frequent Orders: The higher effective price discouraged consumers from placing frequent, small-value orders, which are crucial for maintaining platform volume and growth trajectory.
- Revenue Classification Dispute: The issue revolved around the tax classification of the platform’s service: whether the delivery fee was a component of the food service (which already attracts GST) or a separate logistical service. The decision to tax the delivery charge meant platforms like Zomato had to adjust their financial models.
- Muted Growth: The imposition of this tax head contributed to a period of muted growth for the food delivery sector, as platforms struggled to balance the tax compliance requirement with the need to keep prices competitive for the mass market.
Source :- Money Control