Effective from January 1, 2022 the Union government has decided to levy a 5% Goods and Services (GST) on all rides that will be purchased online. Gear up to now pay extra when you book a ride from services like Uber, Ola and other players.

The Uber, Ola ride which is your rescue when the auto drivers reject you or charge a bomb is set to become expensive now. The ride that you book in a click will continue to remain convenient, but not-so-wallet friendly anymore.

Despite charging taxes and cess, these cab aggregators are one of the most preferred modes of passengers. These services were boon to especially for those living in tier 1 cities. Users prefer booking these rides for the comfort, convenience and transparency that they have been offering. 

Commuters have preferred paying a little extra for the services for cabs as compared to the local autos. However, this now is going to leave their pockets lighter with the GST that has been levied.

Such levies may now also prevent the commuters  from making use of the convenience of auto booking services provided by these apps.

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But, what exactly is the GST ?

Essentially, the GST is a consumption-based tax which is levied on goods and services at the national level for sale, transfer, exchange, barter, license, rental, lease and disposal. 

This tax has replaced (subsuming) all of the indirect taxes levied by state and central government. GST has become a global standard with the rise of international trade in Goods and/or services.

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How will the move impact the passengers and the companies?

According to reports, the aggregators' claim that this modification will have a direct impact on firms that supply a significant number of auto-rickshaw drivers with an online platform for connecting with riders. The tax will create an uneven playing field and it goes against the vision of digitization of services, product and payments.

This move is going to directly impact the ride hailing companies, with Ola and Uber being affected as they make up for a lion’s share of the market as a vast number of auto rickshaw drivers are already connected with these apps and rely heavily on it for find customers. 

Transportation services provided by auto-rickshaw drivers in manual or offline mode will remain exempted. Thus it's likely that the autorickshaws that are not attached with any companies will come in for rescue passengers.

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What cab aggregators have to say?

According to Media reports, Uber has released a statement and demanded that there be a reconsideration of the decision made. The statement said, "The Centre has announced it will levy a 5% GST on auto rides ending an existing exemption. Auto rides hailed on the streets will continue to be GST-free. While we appreciate the need for the government to collect revenues, we urge it  to reconsider this tax, which will end up hurting the earnings of auto drivers as well as the government’s digitization agenda."

The spokesperson of Rapido clearing the aggregator's stance said, "Given the new policy being initiated by the government, the impact on the overall ride-hailing business would be quite adverse for both driver and riders". This policy might lower the rate of consumers opting for auto rides, further making commuting less feasible and hassle-free.

A representative of Peace Auto, an association of auto-rickshaw drivers, has also requested the Union government to reconsider the move and withdraw the tax. He further highlighted that the COVID-19 pandemic has already impacted the ridesharing business. With the new policy coming into effect soon, the auto drivers are going to be majorly impacted.

The  main motive is to reduce the cascading result of taxing the value of goods and/or services and to build a simple, cooperative, and undivided Indian market to create a stronger and more powerful economy. 

While the GST is generating revenue for the government, it does end up being a costly affair for the consumer.

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Let's take a throwback-

In the month of June however it was asserted that the metered cabs or auto rickshaws will not be liable to GST. The GST rate was 5% without ITC and Cab aggregator. However, Uber had already announced that it will collect 5% GST on the fare charged from the passenger.

Let's give you an example and get you ready for the new rates-

If you were to book a cab ride from any of the cab aggregators and the driver is to earn Rs.100 from the ride. He will be paid Rs.100 from the company and Rs.5 will go to the government. The company will further collect a GST on the total amount. The company pays GST on the drivers’ services on a reverse charge basis. It will claim the ITC on tax paid under RCM and adjust with output taxes payable. 

This aim of reverse charge is to bring this unorganized sector under the tax umbrella. It also removes the burden of tax compliance from individuals with limited resources (drivers) to large companies with enough resources.