Karnataka’s ambitious plan to introduce a cess-based social security net for platform workers has sparked considerable debate. While the benefits are widely discussed, a critical element often overlooked is the mechanism for generating the necessary funds: the platform cess itself. The draft legislation suffers from significant ambiguity, leaving unclear both the cess rate and its application – whether based on per-transaction worker earnings or the platform’s overall state turnover.
The legislation mirrors the central government’s social security code, suggesting a 1-2% cess on platform turnover, capped at 5% of worker earnings. This dual-pronged approach, however, presents a significant problem. To illustrate, let’s analyze Zomato’s FY24 annual report, the only publicly listed platform company in a similar sector. The first hurdle lies in defining ‘turnover.’ Zomato’s Gross Order Value reached ₹32,224 crore, but its Adjusted Revenue was significantly lower at ₹7,792 crore – less than a quarter of the order value. This discrepancy arises from Zomato’s dual operations: facilitating orders from external restaurants and selling merchandise from its own dark stores. The report doesn’t clarify how revenue from these distinct operations is factored into the turnover calculation, creating ambiguity and undermining the fairness of the cess application.
An alternative approach would be to base the cess on worker earnings, a seemingly clearer metric. Zomato’s FY24 ‘delivery and related charges’ totaled ₹3,915 crore. However, the exact portion allocated to delivery workers remains undefined. While this metric offers transparency for workers, allowing them to track their contributions per transaction, determining the appropriate cess rate is still challenging. Assuming a conservative estimate of ₹50 per order as the worker’s payment (out of a reported ₹52 in delivery and related charges), a 5% cess would yield ₹2.50 per order. But this must also remain within the 2% turnover limit, which adds another layer of complexity.
Is a ₹2.50 per order contribution adequate for robust social security? A Zomato delivery partner averages 1,880 orders annually, resulting in an annual contribution of ₹4,700. Contrast this with a Karnataka garment worker earning roughly ₹10,000 monthly, receiving an additional 15% (approximately ₹18,000 annually) from the employer towards ESI and EPF benefits. The proposed cess offers barely a quarter of the social security coverage afforded to garment workers, resulting in a severely degraded safety net.
Furthermore, the situation becomes even more complicated if the 5% earnings metric exceeds the 2% platform turnover limit – a scenario quite possible, especially for platforms handling high-value merchandise. As Zomato increases its own product offerings and optimizes delivery costs (e.g., through electric vehicle use), this discrepancy might become the norm. This creates a mathematical impossibility: a single cess rate that satisfies both conditions simultaneously. The current system breaks down under these realistic circumstances.
Alternative Approaches and Recommendations
Many governments using cess-based systems avoid specifying a single rate, creating flexibility. The construction workers’ cess, for instance, prescribes a 1-2% range, but is consistently applied at the lower 1% limit. The Karnataka plan, however, introduces an additional constraint, creating what one might call a ‘3-cess problem’. This would necessitate varying cess rates across platforms (differentiating food delivery, ride-hailing, and urban services) or even individual companies, potentially allowing platforms to exploit regulatory influence and shortchange their workers. A straightforward solution is to adopt a clear, consistent 5% cess per transaction based on worker payments, removing all conflicting conditions. This simple approach ensures better worker protection and avoids complex calculation ambiguities.
