Online cab service Uber seems to be in more trouble: Indian service tax authorities have sought information from Uber’s Indian subsidiary over the non-payment of service taxes, reports The Economic Times.
It cites a service tax department official who says Uber is liable to pay service tax to the government since it is delivering a taxable service. Remember that taxi services are currently not in the “negative list” for service tax and hence attract a tax of 12.36%. The official added that other cab service providers also pay service tax and therefore they do not see the reason why Uber shouldn’t do so.
It’s worth noting that Uber doesn’t own these taxis or employ drivers on its own, rather it ties up with taxi fleets or cab owners to offer its service. Also, service tax is applicable only if the turnover is over Rs 10 lakh and individual taxi drivers many not attract tax if their turnover is lesser than than this limit. However, in this case, ET states that the tax authorities are taking the combined turnover into account.
Operating through Dutch-based entity? The report also notes that while Uber has an Indian entity called Uber India Systems, it still operates in the country through a Dutch-based entity Uber BV.
This is possibly being done to save taxes and also circumvent the mandated two-stage credit card authentication by routing their transactions through foreign payment gateways, since I’ve noticed that the merchant name for Uber transactions in my credit card statement has been “Uber BV Vorden NL”.
This sidestepping of credit card norms was stopped by RBI in August through a new directive, that mandated that entities that route online billing internationally, for goods and services purchased online using Indian cards, need to include a second factor of authentication, and route transactions through a bank in India. Uber now has till October 31st, 2014 to comply with these instructions (Also read: Uber in talks with Paytm & PayU to integrate mobile wallets with its service).
The official told the publication that the tax investigation is currently limited to Mumbai although they are looking to expand this probe into cities where Uber is currently operational. Uber offers its services in 10 Indian cities as of now, including Bangalore, Delhi, Mumbai, Hyderabad, Chennai and Ahmedabad among others. An Uber spokesperson has however told the publication that it is compliant with all local laws and pays relevant taxes in all territories it currently operates.
Google Tax case: This seems somewhat similar to the Google India tax case earlier, wherein the Income Tax department had reportedly imposed a Rs 76 crore penalty on Google India for misleading the department with deflating income, and crediting income to Google Ireland.
As we said earlier, these situations puts Indian businesses at a disadvantage, because their TDS is cut while companies like Uber is not. There needs to be a level playing field, and allowing these situations only unfairly creates an incentive structure for businesses to not set up operations in India. If companies are operating in India, it should be under Indian jurisdiction.