Cloud Kitchens Economic Impact and Tax System Challenges

Cloud Kitchens: Economic Impact and Tax System Challenges
By Mr. Afaret Sayala
Abstract
The emergence of cloud kitchens, also known as ghost kitchens or virtual
kitchens, has disrupted the foodservice industry globally. These delivery-only
establishments leverage digital platforms to serve customers without
traditional dine-in spaces. While this model offers economic benefits such as
low overhead costs and increased entrepreneurial opportunities, it also
presents significant challenges, particularly regarding tax compliance. This
paper examines the economic contributions of cloud kitchens in America and
Turkey and explores their impact on tax systems, highlighting issues arising
from unregistered operations and potential regulatory gaps.
1. Introduction
Cloud kitchens represent a paradigm shift in the food and beverage industry,
fueled by advancements in digital technology and the growing preference for
food delivery services. By eliminating the need for physical storefronts, these
kitchens operate more efficiently and cater to dynamic market demands.
However, this innovative model has sparked debates regarding its long-term
economic implications and the risks it poses to tax systems, particularly in
jurisdictions where regulation and oversight are underdeveloped.
This paper provides an overview of cloud kitchens' economic contributions

and their potential to undermine tax systems, focusing on examples from the
United States and Turkey.
2. Cloud Kitchens: An Overview
Definition and Operating Model

Cloud kitchens are commercial facilities set up to produce food specifically
for delivery. Unlike traditional restaurants, they rely entirely on online
platforms such as Uber Eats, DoorDash, Yemeksepeti, and Getir for order
management and customer engagement.
Growth Drivers
 The rise of food delivery apps.

 Reduced overhead costs compared to traditional restaurants.
 Adaptability to market trends with minimal investment.
Global Market Trends

The global cloud kitchen market was valued at approximately $43 billion in
2022 and is projected to reach $71 billion by 2027, driven by urbanization,
changing consumer habits, and the aftermath of the COVID-19 pandemic.
3. Economic Contributions of Cloud Kitchens
In the United States

Cloud kitchens have provided a boost to the gig economy, creating
opportunities for small businesses and reducing entry barriers for
entrepreneurs. For example:
 Reef Kitchens operates micro-cloud kitchens in parking lots, enabling

food entrepreneurs to scale operations without significant capital
investment.
 Chowbotics and similar companies have introduced robotics into food

preparation, streamlining costs and boosting productivity.
In Turkey
Turkey's vibrant food culture and growing delivery market have made cloud
kitchens popular, especially in urban areas like Istanbul and Ankara. Local
platforms like Yemeksepeti Banabi and Getir Yemek have facilitated this
growth. Many traditional restaurants have transitioned to hybrid models to
compete, while startups have used cloud kitchens to test new concepts.
Economic Benefits
1. Job Creation: Cloud kitchens generate employment for chefs, delivery

drivers, and technology developers.
2. Market Access: Small businesses can enter competitive markets

without the financial burden of opening a full-service restaurant.
3. Increased Consumer Choice: The model allows for experimentation,

offering customers diverse cuisines at competitive prices.
4. Challenges to Tax Systems

Tax Evasion Risks
Cloud kitchens often operate under limited visibility to regulatory bodies,
which raises concerns about tax compliance. In both the U.S. and Turkey:
 Many cloud kitchens are not formally registered as businesses,

avoiding corporate taxes.
 Transactions are predominantly digital, complicating audit trails and

enforcement.
 Platforms that facilitate orders may not always report earnings

accurately, leaving significant gaps in taxable revenue.
In the United States
 Example: A report from California’s Department of Tax and Fee

Administration revealed that many virtual kitchens underreport
revenue by leveraging the anonymity of online platforms.
 Impact: Losses in state and federal revenue due to underreported

sales taxes and uncollected income taxes.
In Turkey
 Many cloud kitchens operate informally, bypassing tax registration.
 Platforms like Getir and Yemeksepeti often host unregistered

vendors, complicating government oversight.
 The Ministry of Finance has reported challenges in tracking VAT from

delivery-based businesses.
5. Broader Economic and Regulatory Implications
Impact on Traditional Businesses

Cloud kitchens, with their low costs, often outcompete traditional
restaurants, which face higher operational expenses and stricter compliance
requirements. This creates an uneven playing field and contributes to the
decline of brick-and-mortar establishments.
Regulatory Challenges
Governments in both the U.S. and Turkey face the challenge of adapting tax
policies to digital-first businesses:
1. Ensuring proper registration of cloud kitchens.

2. Introducing stricter reporting requirements for food delivery platforms.
3. Developing technologies to monitor digital transactions in real time.
Potential Solutions
 Digital Taxation Systems: Implementing systems that automatically

collect taxes at the transaction level.
 Platform Accountability: Mandating that delivery platforms share

vendor data with tax authorities.
 Public Awareness Campaigns: Educating entrepreneurs about the

importance of formal registration and tax compliance.
6. Case Studies
Case Study 1: America
 Company: Reef Kitchens
 Reef has partnered with brands like Wendy’s to expand delivery-only

options in urban areas. While innovative, its operations have drawn
scrutiny due to its reliance on short-term leases and limited regulatory
oversight. Tax authorities have raised concerns about underreporting
revenues.
Case Study 2: Turkey
 Platform: Yemeksepeti
 Yemeksepeti’s Banabi service hosts numerous small-scale vendors,

some of which operate without formal tax registration. The Turkish
government has launched investigations into the platform’s vendor
compliance, yet enforcement remains challenging due to high platform
dependence.
7. Conclusion and Recommendations
Cloud kitchens represent a significant evolution in the foodservice industry,

offering economic advantages such as lower costs and enhanced consumer
choice. However, their rapid growth poses challenges to traditional
businesses and tax systems.
Governments in both America and Turkey must act proactively to address
these challenges. Recommendations include:
1. Establishing robust tax registration requirements for all cloud kitchens.
2. Collaborating with delivery platforms to improve compliance reporting.
3. Enhancing digital taxation systems to capture real-time revenue data.
By fostering an equitable regulatory environment, authorities can ensure

that the economic benefits of cloud kitchens are maximized while minimizing
risks to traditional businesses and tax systems.
Signed:
Mr. Afaret Sayala

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Cloud Kitchens: Economic Impact and Tax System Challenges

By Mr. Afaret Sayala

This paper provides an overview of cloud kitchens' economic contributions

2. Cloud Kitchens: An Overview

Definition and Operating Model

 The rise of food delivery apps.

 Adaptability to market trends with minimal investment.

Global Market Trends

3. Economic Contributions of Cloud Kitchens

In the United States

 Reef Kitchens operates micro-cloud kitchens in parking lots, enabling

 Chowbotics and similar companies have introduced robotics into food

1. Job Creation: Cloud kitchens generate employment for chefs, delivery

2. Market Access: Small businesses can enter competitive markets

3. Increased Consumer Choice: The model allows for experimentation,

4. Challenges to Tax Systems

 Many cloud kitchens are not formally registered as businesses,

 Transactions are predominantly digital, complicating audit trails and

 Platforms that facilitate orders may not always report earnings

In the United States

 Example: A report from California’s Department of Tax and Fee

 Impact: Losses in state and federal revenue due to underreported

 Many cloud kitchens operate informally, bypassing tax registration.

 Platforms like Getir and Yemeksepeti often host unregistered

 The Ministry of Finance has reported challenges in tracking VAT from

5. Broader Economic and Regulatory Implications

Impact on Traditional Businesses

1. Ensuring proper registration of cloud kitchens.

3. Developing technologies to monitor digital transactions in real time.

 Digital Taxation Systems: Implementing systems that automatically

 Platform Accountability: Mandating that delivery platforms share

 Public Awareness Campaigns: Educating entrepreneurs about the

Case Study 1: America

 Company: Reef Kitchens

 Reef has partnered with brands like Wendy’s to expand delivery-only

Case Study 2: Turkey

 Yemeksepeti’s Banabi service hosts numerous small-scale vendors,

7. Conclusion and Recommendations

Cloud kitchens represent a significant evolution in the foodservice industry,

1. Establishing robust tax registration requirements for all cloud kitchens.

2. Collaborating with delivery platforms to improve compliance reporting.

3. Enhancing digital taxation systems to capture real-time revenue data.

By fostering an equitable regulatory environment, authorities can ensure

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