Cab rides may cost more as service tax looms

Soon, booking a cab via web-based aggregators such as Meru, Uber and TaxiForSure is likely to cost you more.

Finance Minister Arun Jaitley said in the Budget any company providing service under the aggregator model will be liable to pay service tax. Also, the service tax will be levied on the total fare and not just the commission being earned by the aggregators for every ride. Meru Cabs is already amid a legal row in the Bombay High Court regarding service tax dues of about Rs 100 crore for the period between May 2010 and March 2013.
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The latest announcement in the Budget is likely to hurt these companies even more because at present, most of them are offer significant discounts to passengers in an effort to beat competition in a growing market. Uber and Meru are among the most aggressive in cutting prices drastically.

"We were in touch with the finance ministry regarding this. It is a good move to bring parity to the sector. The rates may go up but this will bring a level playing field for all," said Siddhartha Pahwa, chief executive officer, Meru Cabs.

At present, only some of the major taxi aggregator such as Ola pay service tax to the government. But even Ola may have to charge its customers more because the service tax rate has been increased to 14 per cent from 12.36 per cent.

"In respect to any service provided under the aggregator model, the aggregator is being made liable to pay service tax if the service is provided using the brand name of aggregator in any manner," the Budget clarified.

"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 explained.

There are 19 radio taxi operators in the country, including Mega Cabs, Easy Cabs, Meru Cabs, and Tab Cabs, according to the Association of Radio Taxis. These operators run over 25,000 cabs across India.

Of late, India's taxi services market, despite the financial stress, has received increased attention from global investors, primarily because the radio taxi model has emerged as the fastest-growing and most reliable form of public transport. There are about 6,00,000 taxis in India, generating a combined annual revenue of about Rs 11,000 crore.

The government has also pointed out that if an aggregator does not have a physical presence in the taxable territory, any representative of the aggregator for any purpose in the taxable territory shall be liable to pay the service tax.

While global investors, including Japan's Softbank Corporation, have infused big money into the growing sector, the latest development may force taxi service aggregators to stay in the red a bit longer.

TAXES ON TAXIS

  • The Budget has clarified that any company providing service under the aggregator model will be liable to pay service tax effective from March 1
  • With service tax increased to 14%, aggregator likely to forgo discounts
  • Cab aggregators, on a discount spree, to push up fare rates

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