Uber, the taxi app that became popular in India by offering luxury car rides for a little more than the regular fare, could run into trouble with India's service tax authorities in the first such inquiry against a foreign service provider in the ecommerce space. This comes shortly after the company was recently forced to fall in line by the Reserve Bank of India, which insisted that it couldn't sidestep credit card security norms.
"We believe the company is liable for service tax since it is delivering a taxable service," a service tax department official in Mumbai who's aware of the development told ET. "We have sought details from Uber's Indian arm." Service tax authorities have sought information from Uber's India subsidiary, which provides systems support to the company, over non-payment of the levy.
The company said it was in compliance with local laws and paid taxes in all countries in which it was present. "Uber complies with all applicable tax laws, and pays the relevant tax in every territory it operates in," a company spokesperson said in an email. "Across 10 cities in India, Uber employs many local employees, in addition to empowering thousands of driver partners to become small business owners, earning a good living through the Uber platform."
Uber BV has no India office
"All payments on the Uber system are cashless and fully traceable in an industry that has been notoriously cashbased for years," the spokesperson addded.
In India, all services attract tax at the rate of 12% unless it's included in a negative list or specifically exempted by the government. Taxi services are not in the list and are therefore liable to pay.
Uber users register their credit card details with the company, which uses that to charge for rides. Cab drivers and owners enter into tie-ups with Uber, for which the company charges a 20% commission. The company has an Indian entity — Uber India Systems Pvt Ltd -- but it operates in the country through Netherlandsbased Uber BV. Service tax authorities say it's the first time they are dealing with a case in which an overseas mobile application is providing services used by Indians.
Uber doesn't have an India office or a representative in the country, which makes the task of tax authorities difficult, they said. "We have recorded a statement of officials from the Indian entity," said the official. Though the investigation is currently restricted to Mumbai, the department is looking to expand this to places where the company has a presence. Rival cab service providers pay service tax and thus tax authorities do not see any reason for Uber not to do so. Service tax is liable only on revenue above Rs 10 lakh and an individual cab driver may not attract tax if turnover is lower than the threshold. But in the case of Uber, the tax authorities are going to take into account combined turnover.
Globally, the taxation of e-commerce companies is under intense focus as they overturn traditional models of doing business. The OECD and the G20 have begun discussions on how countries should tackle taxation in the e-commerce space that poses fresh challenges to tax authorities as companies avoid tax by operating through multiple jurisdictions.
The US company gained customers after it offered high-end cars such as Audis and BMWs to users. Rides are paid for by card without the need for two-factor authentication, which requires users to key in a PIN.