Zomato Faces Rs 184 Crore Service Tax Demand, Plans to Appeal

SUMMARY

⏺ Zomato faces a hefty service tax demand exceeding Rs 184 crore from the Indian government for the period 2014-2017 on overseas sales. The company plans to appeal the demand and expects no financial impact as it relates to a past period and their current focus is the domestic market.

⏺ This comes after a series of tax-related challenges for Zomato, including recent demand notices for alleged discrepancies in GST credit by Karnataka and Gujarat authorities.

New Delhi, April 3, 2024 – Zomato, India's leading food delivery platform, has been hit with a significant tax demand from the Indian government. The company received a service tax demand and penalty order exceeding Rs 184 crore for the period between October 2014 and June 2017.

Disputed Tax on Overseas Sales

According to Zomato's regulatory filing, the tax demand pertains to non-payment of service tax on specific sales conducted by the company's foreign subsidiaries and branches. These sales were made to customers located outside India. While the exact details of the disputed tax are unclear, Zomato asserts they have a strong case and will challenge the order through an appeal to the appropriate authority.

Limited Financial Impact Expected

Despite the hefty tax demand, Zomato anticipates no financial repercussions from this development. This is likely because the disputed tax relates to a period before the implementation of the Goods and Services Tax (GST) in India on July 1, 2017. Additionally, Zomato's current focus lies primarily within the domestic Indian market, with its international operations having been largely shut down.

Shifting Focus and Past Closures

Zomato initially envisioned its international operations as a potential growth driver. However, with overseas revenue contributing a negligible portion to its overall earnings, the company made a strategic decision to scale back its international presence. This resulted in the closure of Zomato's subsidiaries in Singapore, the United Kingdom, the United States, and South Africa, as reported earlier by The Economic Times (ET).

The recent liquidation of Zomato's Vietnam business in January 2024 followed a similar process initiated for its Polish operations in December 2023. The company maintains that these closures have no bearing on its domestic operations, as the subsidiaries were not actively conducting business in their respective markets.

Recent Tax Issues

This service tax demand comes on the heels of other tax-related challenges faced by Zomato. In recent months, the company received tax demand notices from the Karnataka commercial taxes authority (Rs 23 crore) and the Gujarat state tax department (Rs 8.6 crore). These notices pertained to alleged discrepancies in availing input tax credit under the GST regime.

Zomato's share price on the BSE witnessed a slight decline of 0.81% on Tuesday, closing at Rs 183.05. It remains to be seen how Zomato's appeal regarding the service tax demand will unfold and what impact it might have on the company's future financial performance.