Budget 2015: Amazon, Flipkart and Uber to be affected by new service tax rate of 14 per cent

BENGALURU: The budget proposal to bring the online commerce industry under the ambit of the new service tax rate of 14% will impact web-based aggregators of retail sellers, taxi owners, bus operators and hotels including companies such as Amazon, Flipkart, Uber, Snapdeal and OlaCabs. From March 1, online aggregators that own and manage a web-based software application came under the tax net.

"All aggregators which by means of an application and a communication device, enable a potential customer to connect with persons providing service of a particular kind under the brand name or trade name; shall fall under the service tax bracket," said a notification by the finance ministry's department of revenue, effecting the amendments to the Service Tax Rules, 1994 introduced in the budget by Finance Minister Arun Jaitley on Saturday.

"We applaud the government's decision to include specific language pertaining to aggregators in the 2015 Union Budget that will drive improvements to tax compliance," said an Uber spokesperson. This outcome was prefaced by conversations between the Indian tax authorities and Uber over the last few months. Uber was questioned by tax authorities last year over service tax payment in India.

Until now, the service tax rules were silent on the online aggregators. A spokesperson for Uber India said the proposal will ensure transparency and flow of tax revenues directly to the government. An OlaCabs spokesperson, however, said the increase in service tax rate is bound to impact the industry. However, he added, "But the new rules will bring others (foreign players) and us on a level-playing field."

As per the new rules, even if such aggregators appoint just a liaison or country head, their officials will have to file service tax returns on the company’s behalf.

"If an aggregator does not have any presence, including that by way of a representative, in such a case any agent appointed by the aggregator shall pay the tax on behalf of the aggregator. This change comes into effect immediately," said Vinod Kumar, joint secretary (tax research unit) in ministry of finance, in his notification issued last week to chief commissioners of service tax in all states and union territories.

In recent years, US-based internet firms such as Airbnb, Expedia, Groupon and Uber have set up offices in India to aggregate service providers in travel, deals and taxi services. Car sharing services such as France based BlaBlaCar and Germany-based Rocket Internet backed Tripda also entered India with just small marketing teams.

"We are not looking at monetisation in Indian market for almost a year. So it won't impact us," said Raghav Gupta, country manager for BlaBlaCar. Online marketplaces such as Flipkart, Snapdeal and Amazon which charge commissions ranging from 5-20% to sellers on platforms will also fall under this bracket.

The amendments and a hike in tax rate seem to be a gradual progression towards a uniform Goods and Services Tax expected next year. Experts said that the implementation is a necessary evil to have a seamless regime.

"Increasing service tax rate may be a disappointment for consumers but is necessary as a run-up to GST, which is likely to be 16-18%," said Pratik Jain, partner-indirect tax at KPMG in India.

"We are very encouraged by the commitment to implement GST by April 2016. We believe both are key to ease of doing business by enabling and streamlining the movement of goods and services," said an Amazon India spokesperson. The new service tax rules will also apply to online aggregators, deal sites and classifieds players such as Quikr, Zomato, FoodPanda, Olx, Housing, Mydala, Cashkaro and Stayzilla.