Introduction:

Nowadays people look for a cheap mode of travel, cabs services have made their service affordable to everyone. Taxis are an important part of our lives.

According to recently released TechSci Research report, “India Radio Taxi Services Market Forecast and Opportunities, 2020”, radio taxi services market in India is forecast to grow at over 17% through 2020.

The market has been witnessing robust growth over the last few years as customers are increasingly shifting from traditional taxis to radio taxis. The growing inclination of customers towards radio taxis can be attributed to various tangible and intangible offerings like booking convenience through mobile applications, air conditioning, educated and skilled drivers and operators, multiple payment options, 24×7 customer support, electronic fare meters, panic switch, GPS, etc. The extent of comfort and safety provided by cab service is very high compared to other modes of travels.

This Article analyzes the impact of GST on this booming and competitive sector of Radio Taxi.

Definition

Radio Taxi:

‘Radio taxi’ was defined under the Finance Act, 1994, the expression ‘radio taxi’ carries its natural meaning and would, therefore mean a call-taxi. ‘Radio taxi’ means a taxi including a radio cab, by whatever name called, which is in two way radio communication with a central control office and is enabled for tracking using Global positioning System (GPS) or General Packet Radio Service (GPRS).

Tax Rates Under GST On Cab Services:

  • The GST Council made it clear that the radio taxi operators or cab aggregators will bear the full liability to pay the new rate of Goods and Services Tax (GST) as applicable from July 1, onwards.
  • The Government of India via notification no.17/2017, states that GST on services by way of transportation of passengers by a radio-taxi, motor cab, maxi cab and motor cycle shall be paid by the operator itself and not by the drivers.
  • This comes as a big relief to a large number of taxi drivers who were worried about the GST impact on them. Due to this decision of the government, the drivers shall not be required to register under GST and further they even don’t have to bother about GST compliances.
  • Thus in these cases, even though the services are provided by the taxi drivers, the onus to pay the taxes will lie solely on the ‘electronic commerce operator. ‘The new rules will impact companies such as Meru Cabs, Mega Cabs, Ola, Uber, and car rental services such as Zoom Car and Myles.
  • As per the GST rules, transportation of passengers by air-conditioned contract/stage carriage or a radio taxi will be levied a 5 percent tax. Renting of vehicles will be applied a 5 percent tax. However, if fuel cost is borne by the service recipient, then an 18 percent GST will apply to the service provider. Taxi operators and online cab aggregators earlier collected about 6 percent service tax (including cess), from passengers.

How invoicing shall be done by Ola, Uber under GST:

The decision on how to charge the GST shall depend upon the companies pricing policy. If they intend to offer all inclusive price, Rs.7 per KM (taxes included), then drivers shall have to bear the additional burden if company passes it on them.

However, the companies may set prices exclusive of taxes to pass on the tax on the cab consumer; however, that will result in fare increase which may hamper demand.

Illustration

Particulars Before GST After GST
Basic Fare

 

500 500
Access Charges 100 100
Total Charges 600 600
Service Tax @6% 36
GST @ 5% 30
Total 636 630
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Reverse Charge Mechanism:

Reverse charge means the recipient of goods/services instead of the supplier is liable to pay the tax. The reverse charge may be applicable for both services as well as goods. As per the reverse charge notification, radio taxi companies are liable to pay GST under reverse charge.

Erstwhile RCM provisions

As per Section 68(2) of the Finance Act, 1994, the Central Government is empowered to notify such services on which the liability of pay service tax shall be on the service receiver to the extent specified, instead of the service provider. The Central Government has issued Notification No. 30/2012-ST dated 20-06- 2012 and RCM are also applicable on Rent-A-Cab service.

Earlier rent-a-cab services had partial reverse charge mechanism.

Service receivers (rent-a-cab services) were liable to pay 50% under RCM if the service providers (drivers) were not availing abatement. 50% was borne by the service provider. However, if Service provider is availing abatement then service receiver is liable to pay 100% of service tax payable on abated value. To remove such confusion and complications under GST, the entire onus is on the service receiver, i.e. Ola.

Input Tax Credit on Cab Services:

Input Tax Credit means reducing the taxes paid on inputs from taxes to be paid on output. Companies like Meru & Uber will enjoy ITC on the purchases it makes to provide the service of cabs to customers. So if Uber uses (say) a driving school’s services to teach drivers, it is eligible to claim credit for such services on which it pays GST. They will also enjoy ITC on other inputs such as telephone bills, rent paid etc. However, businesses cannot claim ITC of the tax paid on cab services.

Benefits of Tax Reduction on Transport Services

  • Cheaper cab rates will encourage people to travel by cabs.
  • The boost in transport services would eventually reduce traffic congestion on roads.
  • More people using transport services will cut down the carbon content in the air leading to less air pollution.
  • Greater savings in transportation cost due to a reduction in cab fares.

The Negative Side Of GST:

Where we see the good impact of GST on the transport services offered by the big shots Ola and Uber, there is a negative side to its impact on them too.

♠ Cab aggregators have raised concerns over the rise in leasing rentals. Earlier levied tax of 14.5 percent as imposed on leasing of cars is now between 29 per cent to 43 per cent. The drivers will have to pay an additional fee of approximately Rs 1 lakh annually, with their monthly EMIs going up significantly.

There is a service charge of around 18 per cent plus over 20 per cent vehicle sale tax on the leased vehicles that come under GST. The burden of paying this will ultimately come upon the drivers.

Analysts estimate that approximately 7,000 to 8,000 drivers each are associated with Ola and Uber’s cab-leasing programs.

Drivers paying an EMI of Rs 25,000 pre-GST will end up paying an EMI of around Rs 35,000 to Rs 40,000 post-GST.

♠ The wide range of GST adopted solely depends from car to car.

♠ Drivers get a hit from the manifold increase in the amount of new tax under GST levied.

Conclusion

This new tax limit will lead to a small drop, 1 per cent, in the regular cab fares. Currently, cab aggregators — Ola and Uber, pay 6 per cent levied a tax which will reduce to 5 per cent after the implementation of GST. However, GST resulted in Chaos in the lease payments. The chances of default payments might also go up. The government needs to address a concern of this growing and thriving Billion Dollar Industry. Otherwise, Drivers will bear a significant increase in their costs, which may force them to look for employment elsewhere.

About the Author

Karan Sahi is a Lawyer and Company Secretary by profession. He is presently working on SAAS Cloud Startup Firmsap (Compliance through Technology ) and Linking Tribes (Consulting and Media Firm).  Author can be contacted at karan.sahi619@gmail.com

Author Bio

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4 responses to “Impact of GST on Motor Cab Industries”

  1. Sneha Chordiya says:

    I have a proprietorship for rent a cab service where i supply cabs to reqd people hiring cabs from other. Kind of agent. What % gst is applicable to me? Do i need to file gst monthly or quarterly. In the forms, there are many sections. How to fill those?

  2. sudhanshu damle says:

    I am taking services of bus from non register supplier i want pay the GST. I am GST Register

  3. phani.vangi says:

    Sir,
    If an entity hire vehicles from individuals (not registered under GST), and provides rent a cab service to its corporate customers.
    In service tax regime its corporate clients pays Service Tax under RCM. Now under GST regime they has to charge GST.
    whether they has to pay GST under RCM on hire charges paid to individuals, if yes whether such GST is allowed as ITC.

  4. mohan reddy says:

    what is the GST % on cab service( prop rater ship firm). I am giving cab service for company employees transportation from point to point suggest me what % needs to be charged. it will come under any RCM rules

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