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Online tax aggregators tweak invoice for service tax hike
March, 26th 2015

The increase in service tax to 14% from 12.36% has prompted start-ups working on an aggregator model to restructure their invoice system to comply with the revision.

"We had to suspend billing for three weeks trying to understand how to pass on the cost and decided that we will collect the service tax on the entire transaction, including our mark-up and pay the tax to the government," said Divakar Vijayasarthy, founder of Chennai based start-up Meeturpro, which works as an online marketplace for lawyers and chartered accountants.

The company incorporated in 2014 records 300 transactions on average per month with ticket-size of Rs 1,300-1,400 per transaction and had to rework the invoicing system to steer clear of any violations. As per the Finance Bill 2015, an aggregator is liable to pay service tax for any service provided under the model wherein the brand name is used.

Directed at the fast-growing segment of taxi services aggregation, the ruling has affected a number of niche startups offering specialised online services ranging from healthcare consultation to architects and lawyers working on the aggregator model where they provide an online presence to professionals to expand their client base. One of the issues faced by the startups is the definition of the term 'aggregator'.

"An aggregator has been defined loosely in the context of the new service tax regime. Any business using a tech platform at any stage can be called an aggregator if he is working with his brand. How many aggregators are transparent enough to call themselves facilitators of a service, which will exempt them from using their brand name?" asked Sagar Shah, international liaison partner and head - indirect tax and regulatory, BDO India LLP.

Matters are further complicated when the aggregators include a payment gateway on their site, he said, adding, "As a recipient of a service, it becomes important to the aggregator if they are making payments to the service provider as a mere facilitator or he assumes responsibility of the service provider. Collection and disbursement of service tax has to be transparent."

Online test-preparation site Superprofs.com, backed by Kalaari Capital and IDG Ventures, had to restructure its fee based on the new regulations. "It took us 10 to 15 days to renegotiate the system as there was some initial confusion and we did not want to pass on the burden to the students. If teachers fall in the income bracket of below Rs 10 lakh, they do not have to pay the service tax. As we sell digital goods, it was easy for us to renegotiate with the vendors.

We collect the tax from the end customer and pass it on to the government," said Piyush Agarwal, CEO and founder of Superprofs, incorporated in 2010.

Multiple players are unable to determine where and how to pass on the cost of a transaction.

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