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Uber reportedly passes the onus of paying service tax to cab drivers

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Online cab service Uber has passed on the onus of paying service tax to cab drivers and has agreed to provide details about their cab drivers to the tax authorities, reports The Economic Times citing a department official privy to the development.

Last week, Indian tax authorities had asked Uber’s Indian subsidiary to provide details on its Indian operations, since it believed that Uber is liable to pay service tax to the government. Mumbai Service Tax Commissioner SK Solanki told PTI that Uber has not paid them a single penny in taxes so far and its not clear to them yet on how different Uber is from other cab service providers like Meru who already pay service tax.

However, it’s worth noting that unlike Meru, 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. Hence, the company believes that cab drivers are liable to pay service tax and file returns. Effectively, it is a technology platform. The tax department however has concerns with this approach since the service tax is applicable only if the turnover is over Rs 10 lakh, and it’s quite possible that individual taxi drivers many not attract tax, if their turnover is lesser than than this limit. Hence, it was reportedly considering taking the combined turnover of Uber into account.

Indian entity offers is just a tech support office: There is also a concern of Uber operating in the country through a Dutch-based entity Uber BV, which neither has an office nor a representative in India. This was possibly being done to save taxes and also circumvent the mandated two-stage credit card authentication by routing their transactions through foreign payment gateways, until RBI stopped the sidestepping of credit card norms in August this year.

While Uber has an Indian entity called Uber India Systems, it only provides tech support to Uber BV as indicated by the ET report. Yesterday, Solanki told The Wall Street Journal that Uber India should also additionally pay a tax of 12.36% on the fees received for providing services to Uber BV. Uber however has maintained its position that it is compliant with all local tax laws and pays relevant taxes in all territories it currently operates.

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Our Take

We’ve heard similar arguments of the Indian office “being just a sales office” from companies like Google before. This leads to a tricky situation wherein the payments are made to services delivered from outside India but the Indian government loses out on service tax revenues on these transactions, since the company doesn’t have business operations in India.

As we said earlier, we feel that if a company is conducting business in India targeting Indians, then it must pay tax to the Indian government. The current approach puts Indian businesses at a disadvantage, because their TDS is cut while companies like Uber or Google 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.

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