Zomato fined US$94.8M in tax penalties

INDIA – Food delivery platform Zomato has been ordered by India’s tax department to pay INR 8.04 billion (US$94.8 million) in penalties for failing to pay taxes between 2019 to 2022.

The tax authorities have issued a directive seeking INR 4.02 billion (US$47.3 million) in unpaid taxes from Zomato, along with an equivalent amount as a penalty.

The total claim significantly exceeds Zomato’s reported net profit for the July-September 2024 quarter, which stood at INR 1.76 billion (US$20.94 million), reflecting a five-fold increase from the same period last year. 

Zomato plans to challenge the charges, asserting that it has a strong legal case supported by external legal and tax advisors.

The company and its competitor, Swiggy, are also under investigation for potential antitrust violations, including alleged preferential treatment of certain restaurants on their platforms. 

The tax department initially raised concerns in December 2023, questioning why the company should not face the proposed order and penalty.

Zomato responded by arguing that it is not liable for taxes on delivery charges, as these are collected on behalf of delivery partners who independently provide the service to customers. 

The announcement of the penalty coincided with Zomato’s recent efforts to strengthen its market presence.

In early December 2024, the company secured over INR 85 billion (US$1 billion) through a qualified institutional placement (QIP), marking its first significant fundraising since its public listing in 2021.

The QIP, conducted from 25 to 28 November, saw substantial participation from domestic mutual funds. 

Motilal Oswal’s funds acquired the largest allocation, securing 69.2 million shares or 20.81% of the issue. ICICI Prudential and HDFC funds followed, obtaining 12.78% and 8.68%, respectively, while Kotak’s mutual funds received 6% across various schemes. 

In October, Zomato introduced an order scheduling feature, enabling customers to plan food deliveries from two hours to two days in advance.

Available at over 35,000 restaurants across 30 cities, including Mumbai, Delhi, Pune, Bengaluru, and Ahmedabad, the feature offers alternative delivery slots if the preferred time is unavailable. Customers can cancel scheduled orders up to three hours before delivery. 

This development underscores Zomato’s efforts to enhance customer experience while navigating financial and regulatory challenges. 

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