Impact of GST on Uber and Ola’s drivers

By Raaghav G R

Posted on July 3, 2017

When the Indian Government implemented the GST on July 1st, 2017, it brought good news to some people or some communities of people and bad news to others. Among the people worst affected by the implementation of GST are the drivers of the cab hailing companies, Ola and Uber. Approximately 7000 to 8000 drivers in both Ola and Uber ride company – rented cabs. Drivers of both the companies pay approximately Rs. 25,000 as the monthly rental fee for their cabs. With the implementation of GST, they now have to pay anywhere between Rs. 35,000 to Rs. 40,000 as the monthly rental fee! This, according to the executives at Ola and Uber, may make their drivers default on payments or nullify their existing contract with the company or return their cabs to the company and get back their security deposits amounting approximately to Rs. 30,000 for each driver. Read more on Ola

“At Ola Fleet Technologies, we run a leasing programme for tens of thousands of driver-partners who may not be able to afford buying a car of their own. Presently, these driver-partners pay 14.5% VAT. In the proposed GST regime, they will have to bear GST rates of between 29% and 43% on the cars already leased, as an outcome of double taxation on existing leases. This will have an adverse impact on their livelihoods, setting them back by over Rs 1,00,000 for the remaining period of the lease, making it unviable to sustain their business”, said Shalabh Seth, CEO of Ola Fleet Technologies, a fully – owned subsidiary of Ola.

The rental agreement (lease contract) for drivers of Ola and Uber lasts for three to four years.

“This 29% to 43% GST rate range can be explained by understanding that there is a service charge of around 18% plus over 20% vehicle sale tax on the leased vehicles that come under GST. The burden of paying this will ultimately come upon the drivers. However, it’s likely the drivers will try to renegotiate the contract but nullifying the existing contract will be a problem or they will try to return the cars to the company and get back their security deposit of around Rs. 30,000”, said Jaspal Singh, a partner at Valoriser Consultants.

Uber has a great deal more drivers riding their own cars than drivers driving rented cars. Rented cars do not form the bulk of Uber’s business in India. However, as GST has been implemented, Uber’s executives expect to witness a great revolt from their driver partners, driving rented cabs.

“Leasing is not a business we are looking to strengthen for sure, the overall sentiment in leasing will be lower now because of GST rates and the lack of provision for the hike in taxations. Besides this, the chances of default payments on the leasing drivers end are likely to go up or they will try to return the vehicles and get back their security deposits”, said an Uber executive.

Ola and Uber are the backbone of India’s cab – hailing business. Between them, they transport over 10 million passengers nation – wide, per day. They have made commutation much easier and economical for the people in India, especially for those living in the cities of India. Both these companies have given heavy discounts on their ride fares which their customers have enjoyed. If the drivers of these companies, who drive rented cabs, go on a strike, it will adversely impact the availability of cabs, thereby leading to a significant hike in ride fares. It may impact their customers’ budgets. However, the implementation of GST has also brought down the prices of many essential commodities. Given below is a chart, giving details on the impact of GST on many commodities.

Impact of GST

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Impact of GST on Uber and Ola’s drivers