The GST Council’s decision to defer discussions on the taxation of the Software-as-a-Service (SaaS) model for ride-hailing platforms has left the industry in limbo, sparking concerns over innovation, investment, and the gig economy's future. The contentious issue, referred to the council by the Central Board of Indirect Taxes & Customs (CBIC), remains unresolved, prolonging uncertainty for app-based transportation firms and drivers’ unions.
Key Industry Concerns
At the core of the debate is whether platforms operating under a SaaS model, such as Uber, should be treated as e-commerce operators liable for GST under Section 9(5) of the CGST Act, 2017. This provision mandates that platforms discharge GST liabilities arising from rides booked on their apps, a classification companies like Uber and drivers’ unions vehemently oppose.
Uber India’s attempt to introduce a GST-light business model in Bengaluru hit a roadblock following a ruling by Karnataka’s Authority for Advance Ruling (AAR-KA), which classified the business model under the purview of GST. The ruling has stymied fresh investments and innovation in the sector, leaving companies reluctant to expand without regulatory clarity.
Diverging Business Models and Implications
Ride-hailing platforms like Namma Yatri, hosted on the Open Network for Digital Commerce (ONDC), offer a contrasting business model. Operating under the SaaS framework, Namma Yatri charges drivers a subscription fee for app access, paying 18% GST only on this fee. Drivers lauded this model for boosting their earnings by eliminating commissions, leading to a 20% increase in driver participation.
However, conflicting rulings from AAR-KA have created a cloud of confusion. While Namma Yatri was not held liable for GST on fares collected by drivers, platforms like Rapido were deemed responsible for GST on driver services booked through their app. This inconsistency has pushed industry leaders to demand clear policy decisions.
Broader Impact on the Gig Economy
Driver unions have expressed concerns over the potential economic impact of imposing GST on subscription models. Tamil Nadu’s Urimai Kural Drivers Trade Union highlighted that such taxation could hurt driver earnings and destabilize the gig economy, which has seen a surge in driver participation under SaaS models.
Moreover, the fear of retrospective taxation has amplified industry apprehension. A tax expert noted that delays in resolving the issue create uncertainty for businesses, discouraging further investments and impeding sectoral growth.
The Path Ahead
The GST Council is now tasked with resolving the issue, which may require legislative amendments to address discrepancies in the GST law. Finance Minister Nirmala Sitharaman stated that the matter is under active study, with clarity expected in the coming days.
Uber has also sought intervention from the judiciary, moving the High Court earlier this year to seek clarity on whether app-based ride-hailing services should bear GST liability under Section 9(5) of the CGST Act.
The industry awaits a definitive policy decision, as stakeholders emphasize the need for consistent and equitable GST treatment to sustain the growth and innovation of the app-based ride-hailing ecosystem.
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