BackCab aggregators may face a large tax burden
Any company providing services under the aggregator model will be liable to pay a service tax, budget clarifies
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New Delhi: Cab aggregators Ola, Uber, TaxiForSure and Meru Cabs all potentially face a large tax burden that may lead to a significant increase in costs and higher prices for their customers after the budget clarified that any company providing services under the aggregator model will be liable to pay service tax effective 1 March.
The increase in service tax to 14% from 12.36% will also lead to higher taxes for the large e-commerce firms Flipkart, Amazon and Snapdeal, but relatively much lower compared with the cab aggregators.
The aggregator or marketplace model is new in India and until now there has been a lack of clarity about what tax rules must apply toward Uber, Ola and TaxiForSure. These companies don’t own cars or even employ drivers; they simply connect users with drivers, using technology.
Currently most taxi-hailing services such as Uber and TaxiForSure do not pay service tax, with Ola being an exception.
That is now a thing of the past.
“It is not a very positive budget for the radio cab industry," said Siddhartha Pahwa, chief executive officer at Meru. “The service tax has gone up and even the diesel cost has been increased. It will increase the overall fares by about 4-5%. We expect the government to come up with measures to help sustain the industry."
The central government has now clearly defined the term aggregator.
“Aggregator means a person, who owns and manages a Web-based software application, and by means of the application and a communication device, enables a potential customer to connect with persons providing service of a particular kind under the brand name or trade name of the aggregator;" the budget annexure said.
In the budget, the government has also clearly stated that if the aggregator does not have a physical presence in the taxable territory, any person representing the aggregator for any purpose in the taxable territory shall be liable for paying service tax.
The budget also stated that if the aggregator does not have a physical presence or does not have a representative for any purpose in the taxable territory, the aggregator shall appoint a person in the taxable territory for the purpose of paying service tax, and such person shall be liable for paying service tax.
“The increase in the service tax to 14% is surely going to impact us and the industry in a big way," said TaxiForSure chief executive officer (CEO) Raghunandan G. “If the government is going to raise the tax burden so significantly, it may only increase the cash burn in the system, thereby reducing our efficiencies. We can opt to pass this on to our customers, however, this step may push them away from our services, as the cost to the customers may increase."
Law experts said there was lack of clarity about the extent of the increase in tax burden for cab aggregators.
“It doesn’t seem clear whether the cab aggregators would pay tax on the commission that they earn or on the overall fare," said Vaibhav Parikh, partner at law firm Nishith Desai Associates. “If the tax is levied on the overall fare, it brings many complications in tax collection. Service tax is levied only when the turnover of the service provider crosses ₹ 10 lakh. And since the tax aggregators act as facilitator of operators and individual drivers, they could claim that they will pay tax on only the commission. Operators and individual drivers will have to pay tax only when the their turnover goes beyond ₹ 10 lakh a year."
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