Cab aggregators will have to deposit GST on fares, rules AAR

Shishir Sinha New Delhi | Updated on August 14, 2018 Published on August 14, 2018

Taxing time An e-commerce operator is deemed to be the supplier in a taxi- hailing service and shall be liable to pay tax

The aggregator of a radio taxi service, and not the driver, will have to deposit the Goods and Services Tax (GST) on the fare paid by the commuter. This was clarified by the Authority on Advance Rulings (AAR) in Karnataka, which said it is the responsibility of the aggregator, even though he/she has not transported the commuter.

Radio taxis service, such as Ola and Uber, has two aspects: technology provider and the driver. Technology helps book the cab through an app, a Web site or call centres pass the message to the driver who takes the commuter from one point to another. At the end of the ride, the payment made is divided: a major part goes to the driver, while the remaining goes to technology company as convenience fee.

In the tax invoice, the first part is called ‘renting a motor cab’ and attracts five per cent GST, while the second part ‘convenience fee’ comes under business auxiliary service and attracts 18 per cent GST. The technology company pays GST on the convenience fee, but who will be responsible for depositing the GST collected on renting the cab was the question?

Keeping this in mind, a Bengaluru-based taxi aggregator, Opta Cabs, approached the AAR in Karnataka to seek advance ruling on whether the money paid by the customer to the driver of the cab for the services of the trip is liable to GST and whether the applicant company is liable to pay GST on this amount.

It said the billing is done in the name of the driver who provides the service for the particular trip and the taxi driver would collect the amount from the customer on completion of the trip. The applicant does not collect the amount on behalf of the taxi driver and is not collecting any charges, including trip commission, but only collects service charges for usage of IT services such as mobile app and billing related services.

Most drivers have turnover of less than ₹20 lakh, which meant they are not required to register under GST. So it is not possible for them to collect GST from the commuter and deposit it with the government. The AAR, quoting Notification No.17/2017, clarified that the “electronic commerce operator shall be liable to pay tax on the services provided by a motor cab or maxi cab or motor cycle or radio-taxi, by way of transportation of passengers, if such services are supplied through it and it shall be deemed that the electronic commerce operator is deemed to be supplier in such cases.”

It ruled that the applicant is liable to tax on the amounts billed by him on behalf of the taxi operators for the service provided in the nature of transportation of passengers.

More clarity sought

Commenting on the ruling, Anita Rastogi, Indirect tax Partner at PwC, said this is yet another scenario where the government has cast the responsibility to pay tax on someone who is not the actual service provider. Although this ruling does not go further, the next challenge will be how the aggregator will actually do a GST-compliant invoicing on behalf of the taxi operator since the drivers will not be registered.

“Also, this is not a typical reverse charge transaction and accordingly how will the aggregator reflect this transaction in the return. It will be really good if the government can address all these aspects so as to bring absolute clarity on the mechanism to be adopted,” she said.

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Published on August 14, 2018
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