GST: GST haze holding up funding, innovation at ride-hailing companies

App-based ride hailing services have slammed on the brakes on innovation as well as fresh investments for want of a clarity on the goods and services tax (GST) rates applicable under different business models on taxi and auto-rickshaw rides, said people with knowledge of the matter.

Aggregators cite conflicting rulings by the Authority on Advance Ruling (AAR), they said, as recent rulings in Karnataka held divergent views on the applicability of GST on auto-rickshaw rides, while Tamil Nadu ‘s authority upheld its applicability.

“Contrary advance rulings have created uncertainty in the industry,” Uber said in an emailed response to ET’s query, while disclosing that it has moved the AAR in Karnataka (AAR-KA) seeking clarification.

The US-headquartered company has also submitted representations to the Union finance ministry and the state GST authorities requesting clarification and resolution of the tax disparity.“There has to be predictability and consistency in tax administration to ensure a level playing field for all industry players. In a highly competitive environment, inconsistencies in tax application—such as those arising from the use of creative interpretation, can lead to pricing arbitrage advantages, creating further uncertainty,” the Uber spokesperson.

The lack of clarity in other states could lead to varying interpretations, said industry executives.

“The confusion exists in all states,” said an executive, who did not wish to be identified.

The confusion was triggered by a recent ruling by AAR-KA saying Rapido must pay GST on services provided by taxi drivers using its app, treating the driver’s services as those of Rapido.

“This reverses a previous ruling where companies like Multi-Verse and Juspay Technologies were not held liable to pay GST on such transactions,” said Sadashiv Prasad, a practising chartered accountant, who advises aggregators on the subject.

The earlier decision, Prasad said, had benefited both drivers and passengers as drivers were paying GST only on their platform subscription fee. The new ruling has led to concerns about complications in collecting the tax, he said, adding, “Taxi drivers, who benefited from the subscription model, fear losing their extra income, while passengers worry about the return of higher fares.”

Rapido did not respond to ET’s emailed query.

HD Arun Kumar, a former senior tax administrator in Karnataka, said the AAR-KA delivered conflicting opinions in Namma Yatri and Rapido cases based on assumptions without fully understanding the way these apps work. In either case, the operator is not liable to GST, he said.

Shan MS, chief operating officer at Namma Yatri, hailed the AAR-KA ruling in his firm’s case. “Since we neither collect payments nor fix prices, with fares set according to government rates, passengers enjoy fair pricing while operators receive the full value of their services. Our minimal tech fees apply only to the drivers, with no fees charged to passengers,” he said. “As part of the government-backed ONDC Network, we are committed to democratising commerce and empowering marginalised drivers to earn more. Our model has resulted in significant savings for all, and we’re happy to see the public embracing our app.”

Abhysyant Anasapurapu, co-founder at Multi-Verse technologies, said the company came up with its MYn app to relieve passengers and drivers of difficulties they faced from platforms. “As a tech provider, we saw no sense in fixing fare, monitoring the ride and collecting the fare as it was the business of the taxi driver. We stayed out of it,” he said, while welcoming the AAR opinion in his startup’s case.

The aggregators who got a favourable ruling, said that some platforms shortchanged customers with peak-hour fares and drivers with deductions, and that the ruling in their case has rid both drivers and customers of this issue.