Uber, Ola & Co. Demand GST Guidelines from Tax Authorities

Ola, Uber, and Rapido are among the ride-hailing companies that will present a new set of arguments to the Central Board of Indirect Taxes and Customs (CBIC) regarding the controversial topic of whether the goods and services tax (GST) applies to services provided using the software as a service (SaaS) model.

Instead of paying gig workers a commission, platforms that use the SaaS model charge them a set monthly price. According to a media report, businesses are anticipated to highlight any ambiguities resulting from the SaaS model's uneven tax treatment in light of conflicting decisions made by the Karnataka Authority for Advance Ruling (AAR).

They claimed that the Karnataka AAR's ruling was skewing the industry's competitive parity.

Karnataka Govt Not Providing Same Level Playing Field

The Karnataka AAR ruled that Uber and Rapido must pay the tax under the same scheme, even though it permitted ONDC-affiliated Namma Yatri to operate without imposing GST.

While Uber has implemented this concept for three-wheeler ride-hailing, Rapido uses it for its auto-rickshaw and four-wheeler ride-hailing services. Earlier this month, Ola Consumer extended its subscription model, which it had initially used for autorickshaws, to include four-wheeler taxi services.

 According to a media report, some businesses have adopted a "no-tax position" regarding the subscription model, which results in inequity for players who pay taxes and charge commission.

The ride-hailing industry is a price-sensitive one, and those that use a subscription model wind up offering riders substantially cheaper fares. This disadvantages some businesses in the marketplace.

Subscription Model to Bypass GST

As per a media report, the decision to introduce subscription-based plans, in which platforms charge driver partners on their platforms a set daily or weekly cost for an unlimited number of trips, may enable businesses to avoid paying the 5% GST that is applied to journeys that they facilitate.

Section 9(5) of the Central GST Act, which requires e-commerce enterprises, including food delivery services, ride-hailing platforms, and online retailers, to collect and pay tax on behalf of service providers listed on their applications, applies the 5% GST. These consist of drivers, eateries, and online marketplace vendors.

The new arguments follow a recent direction from the Karnataka High Court requesting that CBIC consult with interested parties and make clear its position on the issue.

Due to uncertainty about whether a September 2023 advance tax ruling that held Namma Yatri need not collect and pay GST would also apply to other platforms, tax experts warned that companies using subscription models to avoid the 5% GST could potentially result in disputes between operators and tax authorities.

However, the Karnataka AAR declared in July 2024 that Rapido had to pay GST for its taxi services, and in November of the same year, it declared that Uber would also be required to pay tax for services that were introduced under the subscription model.