Over the previous few weeks, Ola has rolled out the subscription mannequin for its auto-rickshaw drivers in some high markets together with Delhi-NCR, Mumbai, Bengaluru and Hyderabad, whereas Uber has launched the identical in six cities beginning with Chennai, Kochi and Visakhapatnam, an individual conscious of the matter mentioned.
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The transfer to launch subscription-based plans – the place the platforms cost a hard and fast every day or weekly payment to driver companions on their platforms for an infinite variety of rides – might assist Ola and Uber probably bypass the 5% items and companies tax (GST) relevant on auto-rickshaw rides facilitated by them, folks conscious of the developments advised ET.
ETtechTax specialists, nonetheless, mentioned this transfer might result in potential disputes between the operators and tax authorities with lack of readability on whether or not a September 2023 advance tax ruling, which held that Namma Yatri needn’t acquire and pay GST, would apply to different platforms as effectively.
The 5% GST is relevant beneath Part 9 (5) of the Central GST Act, which mandates ecommerce operators resembling ride-hailing platforms, food-delivery corporations in addition to on-line retail marketplaces to gather and pay tax on behalf of the service suppliers listed on their apps. These embody drivers, eating places and e-marketplace sellers.
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ET had reported on March 12 how app-based cab and auto-rickshaw operators have been providing new incentive buildings to driver companions within the context of rising competitors.
Historically, Ola and Uber have adopted a commission-based income mannequin the place the platform retains a share of the fare for each experience as fee or reserving payment and passes on the remaining to driver companions.
Beneath the subscription mannequin, the ride-hailing platforms cost a per-day or per-week payment to driver companions to get found by clients seeking to e-book a experience. Two key variations within the new mannequin are that Ola and Uber don’t enable on-line funds they usually don’t set the worth for these rides.
This mannequin is positioned as a software-as-a-service (SaaS) product that’s being supplied to the driving force companions.
An Uber spokesperson confirmed that the ride-hailing firm has launched the SaaS mannequin service on its autos in additional than half a dozen cities because it “needs to provide the optionality to its riders since many corporations are already working on this mannequin”.
Ola and Rapido didn’t reply to detailed queries as of press time Monday.
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Why the change?
“In a extremely aggressive situation, by deploying the SaaS mannequin and never paying the 5% tax, some corporations are gaining a price arbitrage… This makes it crucial for his or her opponents to additionally deploy the identical mannequin,” a senior govt at one of many ride-hailing companies mentioned.
Whereas Ola and Uber rolled out the SaaS mannequin solely over the course of the previous few weeks, Rapido had launched the identical in February for auto-rickshaw drivers.
“There are professionals and cons to the subscription mannequin… One of many advantages is loss aversion,” the manager cited above mentioned. “If, as a driver, I pay Rs 30 per day to the platform, I’m extra more likely to keep engaged.”
One of many disadvantages is that the platform loses management over pricing, the individual added.
One other Bengaluru-based govt mentioned youthful corporations launching the subscription mannequin hurts greater incumbents, which train a better management over pricing and commissions that advantages the platform.
“For newer entrants, it’s a approach of going aggressive on driver onboarding and amassing a provide base. As a smaller platform, you can not cost excessive commissions that the incumbents do,” he mentioned.
Additionally learn | Karnataka notifies new three-type fare construction for cabs, aggregators can go on GST
Want for readability
Tax specialists mentioned a platform connecting a driver to a passenger alone doesn’t make it liable to pay the 5% GST. Nonetheless, they have been divided on whether or not the advance ruling made within the case of Namma Yatri might apply to different platforms as effectively.
“If an operator connects a driver to a passenger, by that alone, they don’t grow to be liable to pay tax,” mentioned Abhishek Jain, nationwide head and accomplice, oblique taxes, at KPMG in India. “The factor is provide being made by them, which additionally must be fulfilled. So, until different corporations are in a position to get factually out of provide not being made by them or managed by them, Part 9(5) (of CGST Act) will almost definitely apply,” he mentioned.
Whereas the advance tax ruling is simply binding on the applicant within the explicit jurisdiction it was pronounced, related rulings could be secured by different operators as effectively “if the enterprise mannequin is similar and it’s a legally sound ruling”, Jain mentioned.
Ankit Jain, an oblique tax lawyer and accomplice at Delhi-based legislation agency Ved Jain & Associates, posited that the federal government wouldn’t need to forgo its tax income because the subscription mannequin turns into extra widespread.
“Merely on the premise of the advance ruling, it’s a dangerous manoeuvre to make… We’ve seen how the legislation has been interpreted within the Gameskraft case and the way the entire subject with taxation on on-line gaming unfolded,” he mentioned.
“At this time, operators would possibly need to change their fashions to counsel they don’t seem to be ecommerce operators. However the authorities wouldn’t need to forgo this income. Tomorrow, it could subject a round or get a clarification from the GST Council that claims the advance ruling is wrong. Any of that is attainable,” Jain mentioned.
