Here’s How Karnataka’s 1-2% Cess On Aggregator Services Could Impact Consumers

Karnataka government announced a 1-2% cess fee on every transaction by online aggregator platforms, to be used for the gig workers’ welfare fund, reported The Hindu on October 19, 2024. Labour Minister Santosh Lad told the daily that the cess will not be levied on the overall product value but on transportation costs incurred and that the aggregator and the customer will incur 50% of the fee each.

“The Labour Department of Karnataka has decided to impose cess on every transaction on aggregators platforms like Zomato, Dunzo, Swiggy, Zepto, Ola and others such. The money which will be collected will be used for the welfare fund for gig workers. We are not charging for products or goods which consumers purchase, wit [sic] will be charged only on transport,” said Lad as per an ANI X post.

The state government’s decision is in line with the draft Karnataka Platform-based Gig Workers (Social Security and Welfare) Bill, 2024, released in July 2024. The Bill directed aggregators to pay a welfare fee called “The Platform Based Gig Workers Welfare Fee.” While the Bill suggested aggregators could deposit the fee at the end of each quarter, the government’s calculation of 1-2% cess per transaction seems to be based on stakeholder comments.

Cess rate estimated after stakeholder inputs: Days after the Bill’s release, gig worker unions like the Indian Federation of App-Based Transport Workers (IFAT) and advisory group NASSCOM sent their inputs regarding various provisions of the Bill. Regarding the welfare fee specifically, IFAT asked that there be a levy at a specified rate of not more than 2% of the total ride cost from each passenger. On the other hand, NASSCOM suggested that the aggregator’s contribution should be a minimum of 1% of its annual turnover and not exceed 2% of the same. To read more about the inputs from various stakeholders, click here.

How do such fees affect the cost of service? The possibility of a cess fee follows a series of GST notices sent to platforms like Zomato and Swiggy for not paying GST on the delivery fee charged to consumers. Aggregators have stated that such fees should not be attributed to them as delivery workers are not direct employees but “partners” within the gig system. However, considering the growing demand for regulation of the gig economy in India, companies may be hard-pressed to revise their entire fee structure, which in turn could mean higher cost-of-service for consumers. Already, platforms have begun experimenting with platform fees and as per Zomato’s last earnings call, the company will continue experimenting with such fees based on consumer behaviour.

Cess announcement comes shortly after the central government’s discussions on gig policies: During the consultation period of Karnataka’s gig worker bill, many contrasting opinions cropped up with some experts criticizing the employer-employee approach taken by the state government. Acknowledging this grouse, the central government said it will not place gig workers under the traditional employer-employee framework. The Labour and Employment Ministry will create a new definition for the workers who provide services via online platforms, reported Outlook Business.

During a meeting with worker representatives on October 17, the Ministry discussed social security and health protection for gig workers to establish relevant provisions by next year. Labour Minister Mansukh Mandaviya said the ministry has set up a committee to create a framework towards this end. The committee will collect input from all relevant stakeholders to develop a well-rounded approach. Suggestions during the meeting included deducting a small contribution per transaction or imposing a cess to fund social security benefits like health insurance and pensions for gig workers.

Also Read:

• Industry Representatives and Labour Union Clash over Karnataka Gig Workers Welfare Bill Provisions
• Karnataka Introduces Gig Worker Social Security and Welfare Bill: Key Highlights
• Zomato To Continue Experimenting With Platform Fees, Says Gig Workers’ Laws Unlikely To Affect Profit
• West Bengal Slaps Yet Another GST Notice on Zomato Worth Nearly Rs 18 Crore

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