A Bengaluru-based startup has filed an appeal questioning a July 27 ruling by GST authorities in Karnataka which said app-based cab aggregators must pay GST on trip fares collected by private cab drivers/owners tied to their e-commerce platforms.

Opta Cabs, a startup that plans to offer app-based cab hailing services, has preferred an appeal to the ruling by the GST Authority on Advance Ruling in Karnataka. Its founder Chandrakaladhar Reddy (44) said: “This kind of regulations impose huge legal costs, and create an entry barrier for startups like us. The policy needs to change.”

Sections of GST experts believe the GST policy requiring aggregators to pay GST on fares collected by cab drivers will hurt startups as “it affects their liquidity and increases their operational risks and costs.”

The provisions of law and notifications are detrimental to the interest of ecommerce players, especially startups, engaged in the business of providing taxi hire services through marketplace model, said M.A.Maniyar, GST consultant and former Deputy Commissioner of Commercial Taxes, Karnataka. A former tax commissioner, not willing to be identified, too felt the GST policy approach seemed to skew in favour of deep-pocketed aggregators, and not budding platforms.

PV Srinivasan, mentor for indirect tax expert committee at Bangalore Chamber of Industries & Commerce (BCIC), felt the GST policy in this case militates against the government’s policy of encouraging self-employment. “The policy looks discriminatory against small entrepreneurs, and imposes a tax cost on ecommerce cab aggregators on a consideration that they don’t collect.”

The GST legislation has indirectly led to taking away the benefit of the GST exemption available to individual/small taxi operators for annual turnovers below Rs 20 lakh, said Vivek Pachisia, tax partner at EY. According to Maniyar, aggregating the fare collected by all the taxi drivers/owners and subjecting the same to tax at the hands of the ecommerce operator is unreasonable.

Like it does with ecommerce retailers, the GST policy could have asked app-based cab aggregators too to collect 1% TCS (tax collected at source), instead of transferring the entire burden on the ecommerce company, Srinivasan said. “When the transport sector is already paying steep taxes with fuel price steadily increasing, I think if this additional GST on ecommerce platforms needs a relook.”

EY’s Pachisia, however said, the government has in a way expanded the tax-base by indirectly including even small service providers within the GST net because they provide the services through an ecommerce platform while the same service would not be taxable if they were to provide it without platform support. “Eventually, the impact of GST is borne by the customers and taxi-operators and not ecommerce platform operator,” he said.HG Kumar, former Additional Commissioner of Transport, Karnataka, clarified that small ecommerce players with less than 100 cabs can operate just with a radio taxi license while those above 100 cabs require aggregator license. Only Uber, Ola and Utto have taken aggregator license in Karnataka.