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Posted On 2017-07-17


Taxi services are one of the basic necessities in modern metro cities such as Mumbai, Delhi, Bangalore, Hyderabad, Kolkata and Chennai. Even smaller cities now have the option of taxi services such as Ola and Uber. These app based taxi services are a lifeline for people who have to commute to work in cities which have inaccessible public transport. For the white collar and pink collar people, booking a cab through the mobile based app is more of a necessity than a luxury.

The impact of the Goods and Services Tax (GST) will mostly be seen in the segment of ‘radio taxis’ which include within its ambit the services of cab aggregators such as Ola and Uber. Radio taxis are such that can be booked via a phone or mobile based app.

With the advent of GST, which came into force on July 1, 2017, Ola and Uber rides have become a bit cheaper for the customers as transport services have been included in the lowest bracket of 5 percent tax. Earlier, a service tax of 6 percent was being levied on cab fares. Cab aggregators – Ola and Uber have decided to pass on this 1 percent tax reduction to its customers in the form of discounts and special pricing. This has brought a smile on the faces of commuters.

However, there is an increase in the leasing rentals for the driver - partners of these companies. Before GST was rolled, drivers were paying VAT of 14.5 percent upon their leasing rentals. After July 1 st, they will have to shell out more as the GST for leasing rentals is now 29 – 43 percent.

There are many drivers who cannot afford to buy their own vehicle and hence enter into a leasing agreement with the cab aggregator to rent a car and drive the same. Depending upon the car they have rented, they will now have to bear the brunt of double taxation which could adversely affect their livelihoods and hit losses amounting to almost Rs. one lakh – two lakhs per year for the remaining period of their lease.

Monthly installments of the cab drivers who have taken vehicles on lease will ,see a hike where a driver who earlier paid an EMI of around Rs. 25,000 per month will now have to pay somewhere between Rs, 35,000 – Rs. 40,000, post the advent of GST. Almost 7,000 to 8,000 drivers are going to be affected by this new taxation as they are already enrolled under the Ola and Uber cab-leasing programmes.

The leasing rental of 29 – 43 percent includes a service charge of around 18 percent and a 20 percent vehicle sale tax on the leased vehicle. It is a possibility that the cab drivers will now try to renegotiate the contract with the cab aggregators to protect their interests. Another possibility is that the cab drivers will try to return their leased vehicles back to the cab aggregator and take back their security deposit of around Rs. 30,000.

To summarize, the GST has been marginally beneficial for the commuters as there is a tax reduction of 1 percent. Unfortunately, cab aggregators and cab drivers will be hard hit with the new taxation system as there is a huge increase in the rental payments. The livelihood of the drivers will be affected which may prompt them to seek other means of employment.

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