Karnataka plans 1-2% transaction fee on aggregator platforms like Zomato, Swiggy for gig worker welfare fund

A rest point by Zomato. Representational picture

The Karnataka government is likely to impose a fee of 1-2 percent on every transaction that takes place on aggregator platforms such as Zomato, Swiggy, Flipkart, Amazon, Ola, Uber, Urban Company (UC), and several others.

The amount collected by these aggregators will be transferred directly to a welfare board, which will eventually use the funds to introduce social security measures for gig workers engaged in delivery services for these platforms.

To be sure, the fee, once the bill is passed, will be collected by the platforms and passed on to the welfare board directly. While the companies will not benefit in any way from the move, it will deter customers from ordering more frequently as orders will get costlier by 1-2 percent.

This follows the government's move in June earlier this year, when it unveiled the draft Platform-Based Gig Workers (Social Security and Welfare) Bill, 2024.  However, it was put on hold.

"We are planning to collect a welfare fee that will be levied on a per-transaction basis, ranging from 1-2 percent order on each platform. The fee will be collected by the respective aggregators, who will eventually pass it on to a welfare board that we are establishing," a senior state government official told Moneycontrol.

This fee will apply to all customers who transact on aggregator platforms, including Rapido, Dunzo, Zepto, Porter, Namma Yatri, and others in addition to the aforementioned names. The funds will be utilised for the social security and protection of gig workers. Aggregators providing services such as ride-sharing, food and grocery delivery, logistics, e-marketplaces, professional services, healthcare, travel and hospitality, content, media services, and others will fall under the purview of this bill.

The labour department had earlier considered whether to levy a fee on every transaction or collect a fixed amount based on a company's turnover in Karnataka, people familiar with the developments told Moneycontrol. On July 2, Moneycontrol reported that a consensus was reached to impose a fee on each transaction, instead of basing it on the aggregator's annual turnover, in the state of Karnataka.

Also read: Draft gig worker bill: Karnataka likely to impose per transaction fee for welfare fund

Labour department sources said that the state cabinet is likely to discuss the Karnataka Platform-based Gig Workers (Social Security and Welfare) Bill on October 28. "Once the cabinet approves it, the bill is likely to be presented during the winter assembly session in December in Belagavi," a source said.

Karnataka Labour Minister Santosh Lad said, "The money collected will be used for the welfare fund for gig workers. We are not charging for products or goods purchased by consumers. The charge will apply to transport charges, as GST is already levied on the overall product."

Another source said, "In the draft bill, it was suggested to impose a 1 percent to 5 percent fee per order, but it was later decided to charge only 1 percent to 2 percent. It is likely to settle on a 1 percent fee once the rules are framed after the bill is passed by the assembly.  Many aggregators were also not in favour of imposing a welfare fee based on annual turnover, so we decided to implement it on a per-transaction basis."

Also read: Karnataka draft bill: Aggregators cannot terminate gig workers without 14-day notice

There has been a precedent of sorts. Last month, Karnataka Governor Thaawarchand Gehlot gave his assent to the Karnataka Cine and Cultural Activists (Welfare) Bill, 2024, which proposes a cess of up to 2 percent on movie tickets and OTT subscription fees for the benefit of cinema and cultural artists. "We are now in the process of framing rules," an official said.

Also read: Karnataka Gig Workers Bill: Aggregators, industry bodies seek more time, wider consultation

32 stakeholders meetings 

Labour department officials said they conducted 32 rounds of meetings with stakeholders, including around 26 aggregators, gig workers' unions, civil society groups and lawyers. "We also conducted inter-departmental discussions with the state department of Information Technology and Biotechnology and organisations like NASSCOM (National Association of Software and Service Companies) and the CII (Confederation of Indian Industry). Members of the ILO (International Labour Organisation) also participated in the meetings," an official said.

With the deadline for submitting objections and suggestions for the bill having ended on July 10, labour department officials had planned to present it during the monsoon session of the legislature later that month. However, this was deferred after aggregators and industry bodies requested more time and wider consultation.

Also read: Karnataka Gig Workers' Bill: Nasscom says notice period for termination, data disclosures to hit operations

NASSCOM had flagged several provisions of the gig workers' bill, stating they could adversely impact aggregators’ business. The Internet and Mobile Association of India (IAMAI) raised concerns over the draft law, warning that it could hinder business operations and negatively impact the state's ease of doing business ranking. However, the Indian Federation of App-based Transport Workers (IFAT) and Vidhi Centre for Legal Policy and other Unions also welcomed the bill.

Labour department: No dual taxation

Aggregators had opposed the labour department's move, arguing that gig workers are covered under the Union government's Code on Social Security, which provides for a social security fund, financed in part by aggregator contributions of 1 percent to 2 percent of annual turnover, capped at 5 percent of payments to workers. However, the Karnataka labour department insists there is no duplication. "The Code on Social Security mentions contributions based on annual turnover, while ours is a welfare fee based on transactions. We’ve included a sunset clause in the bill to prevent duplication. If platforms in Karnataka pay the 1 to 2 percent welfare fee under this bill, they will be exempt from the Social Security Code once it is enacted. This resolves any issues of double taxation," an official said.

Also read: Karnataka Gig Workers' Bill could impact ease of business in the state, warns IAMAI

Monitoring system to be in place

The labour department plans to establish a central transaction information and management system, which will record every payment to gig workers and deduction towards welfare fees. "We had preliminary discussions with the International Institute of Information Technology, Bangalore, to develop a monitoring system," said the department official.

Also read: Karnataka govt seeks inputs, suggestions on Gig and Platform Workers' Bill

On aggregators' reluctance to part with details, an official said, "In most countries, aggregators share data. The welfare fee burden might fall on customers, gig workers or platforms, but we need to track worker transactions. We will also design a mechanism for both aggregators and gig workers to pay if required." He said that they need transaction data and values to levy the welfare fee.

Also read: Karnataka Gig Workers draft bill: Deadline for objections ends, likely to be tabled in legislative session

Welfare board to come up with schemes

According to the bill, every platform-based gig worker and aggregator must register with the welfare board.  Officials said that the amount collected will go to the welfare fund, with schemes designed by the board. "For instance, Spain has implemented a riders' law, the European Commission has introduced regulations, and  UN agencies have also issued guidelines for aggregators and platforms related to algorithm management," he said.

Also read: Karnataka governor approves bill imposing cess on movie tickets, OTT subscription

Officials said that gig workers are often exploited by aggregators, who often refuse to treat them as employees. "Recently, the Karnataka High Court ruled that a relationship exists between platforms and workers, meaning they cannot deny their status as workers rather than independent contractors. Aggregators provide training and apps, sell products and have a contractual agreement in place. If platforms exercise control over workers and penalise them for errors, it indicates that they cannot be considered independent contractors," the official said.

Also read: Karnataka to make registration must for aggregators to hire gig workers, law in the works

While the state government doesn't have exact data on gig workers, a 2022 report by the Union government think tank NITI Aayog estimated their number at around 2.33 lakh in Karnataka.

In 2023, Rajasthan, then ruled by the Congress, became the first state to pass a law for the welfare of platform-based gig workers. The Congress is now in power in Karnataka.