No tax terrorism, Uber should pay tax

Uber, the taxi rental service accessible via a phone app, has been asked to pay service tax, and should comply. Taxi services are not on the exempt list, and are, therefore, liable to service tax. However, Uber reiterates the stand it has taken in other countries: it only offers a matchmaking service to willing parties. Uber’s argument is fallacious.

It’s a service provider because connecting riders with drivers is nothing but a service. Uber should pay service tax on the service it admits to be providing, and, further, collect tax on the service of ferrying passengers on behalf of those who provide that service, and on whose behalf Uber collects money from the passenger.

The amount can always be billed to the rider. On its part, the tax department should ensure hassle-free procedures to make compliance easy for Uber, and other e-commerce service providers. As transactions become more complex in a rapidly globalising world, disputes between tax authorities and multinational companies will only rise. Dispute resolution mechanisms should function well, and the government should quickly appoint dedicated tax officers to the process.

Service tax disputes go on for years, at present. Services contribute to over 60% of the economy, but service tax revenues account for less than 2% of GDP. To raise the share, all exempted groups should be brought to the mainstream ahead of the goods and services tax (GST).

The government must prune the negative list. Even sectors such as education and healthcare can be treated like exports that would be zerorated under GST so that service providers can be refunded all taxes paid on inputs, while the final product is spared of tax. GST will make revenues buoyant and raise the share of service tax in GDP. The key here is to facilitate compliance.