Zomato Faces Rs 402 Crore Tax Scrutiny While Zomato Live Eyes Expansion Into New Cities

Zomato Ltd, the popular online food delivery platform, receives a show cause notice (SCN) from the Goods and Services Tax (GST) office. The notice, issued on December 26, 2023, demands an explanation for an alleged tax liability of Rs 401.7 crore, along with interest and penalties. This pertains to the period from October 29, 2019, to March 31, 2022, raising questions about the company's financial practices.

Zomato disclosed this information in an official exchange filing, acknowledging the SCN received under Section 74(1) of the Central Goods and Services Tax Act, 2017, from the Directorate General of GST Intelligence, Pune Zonal Unit. The notice specifically targets the delivery fee collection from customers during the mentioned timeframe.

The company's stocks reacted to the news, opening in the red on both BSE and NSE on December 28, registering a 1.69% drop at Rs 124.90 and a 1.77% decline at Rs 124.80, respectively. Zomato clarified that the alleged tax liability is based on the amounts collected as delivery charges from customers, acting on behalf of delivery partners.

In a parallel development reported by Mint, Zomato Live Entertainment, the events vertical of the food delivery giant, is gearing up for expansion. The events division is set to enter new cities and create fresh intellectual properties (IPs). This strategic move aligns with Zomato's recent introduction of a dedicated tab on its app, facilitating users in discovering and engaging with highly anticipated events across various cities.

Despite the tax scrutiny, Zomato Live Entertainment appears optimistic about its future prospects. As of now, the events vertical contributes only a single-digit percentage to Zomato's overall revenue. However, the company aims to boost this figure substantially, leveraging the success of its recent app feature dedicated to events.

Zomato Live Entertainment, launched in 2018, initially focused on the Zomaland IP, a food carnival and music festival spanning eight cities. Over the years, it has attracted around 2,00,000 customers, offering a holistic experience blending food, entertainment, and music. The division's expansion plans indicate Zomato's commitment to diversifying its revenue streams beyond the core food delivery business.

The company's spokesperson highlighted the significance of achieving double-digit contributions from Zomato Live Entertainment. "If you look at the scale and the size of the business that we have with online ordering right now and BlinkIt, even a low double-digit is still huge as a business. That's the goal that we're working towards, and we'll release some of those numbers as they come up," the spokesperson commented.

Zomato's foray into the events space aligns with broader industry trends where food delivery platforms are seeking to enhance user engagement and loyalty through additional services. While the tax notice poses a challenge for Zomato, the company's strategic moves into the events sector signify a proactive approach to diversifying revenue streams and providing users with a more comprehensive experience beyond food delivery.