GST Impact On Cab Hailing Services

by Vinaya HS on July 29, 2017

in Finance

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Earlier, the car manufacturers were hesitant about being associated with taxi services and only a few companies with their select models like Toyota Innova or Tata Indica and a couple more were used for cab services. But now, when the car manufacturers have realized the potential and growth of the taxi services in India, they are eyeing for a bigger chunk of market share of cab services sector. And hence today, we see almost all the sedans and even top end models being used as taxi by market giants Ola and Uber.

The people in big cities no more wish to take out their car in the intense traffic and incurring further expenses like driver and parking. Hence, they prefer cab services. Since, Ola and Uber have lately become more affordable, the taxi market is growing leaps and bounds. Now, the GST latest news suggests that after the advent of GST, cab hailing services may be positively impacted.

GST impact on cab hailing services

As the GST news says, the users of Ola and Uber can rejoice as the taxi fare has decreased for them. The transport services have been put in the lowest tax slab of 5% under GST model. Where the cab fares were taxed at 6% in the previous tax regime, the 1% benefit of lower taxation will be passed on to the customers. The companies like Ola and Uber have already been communicating this good news to their users via SMS.

But the sad news for the cab drivers is the rise in leasing rentals. Uber and Ola drivers who could not afford to buy own vehicles and were under the leasing programs, will have a major dent on their pocket. Previously the tax rates were 14.5%VAT which after GST goes up to anywhere between 29% and 43% due to outcome of double taxation on existing leases as the GST latest news confirms. This also means that the drivers are now liable to pay Rs.1 lakh per year additionally and their monthly EMI to go up too from 25,000 per month (800/- per day) to 35,000 per month. This additional burden will fall totally on drivers. The data states that there are around 7000 to 8000 drivers associated with cab leasing programs working under Ola and Uber. The company is also disappointed with the hike as they are experiencing revolt by drivers, a lower leasing, more default payments, and return of vehicles. This will cause problems for both drivers and the companies, the GST news points out.

The companies will be benefitted with ITC on the purchases done to provide the service of cabs to consumers. The company can claim ITC on which they pay GST like teaching drivers, telephone bills, rent paid etc. This excludes ITC on the tax company pays for cab services for their employees.

Thus, GST news points out that while for the passengers, GST has been advantageous the increase in the lease payments has caused problems to drivers and companies. They are hoping that the government will address their concerns soon.

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