In this age of internet and mobile application, the services are provided and received by people without even knowing each other. Dealing through middlemen is not a new concept. But, in this modern era people are even more reliant on popular middlemen i.e. web-portals, discount sites, cab-operators, etc. All such transactions are not recorded as the service providers and service receivers are relatively small persons and therefore many times the Government loses its share of revenue. To stop the leakage, vide Finance Act 2015, the government has come out with a concept to tax the aggregator i.e. the person who enables the contact between service provider and service receiver.
As per statutory definition “aggregator” means a person, who owns and manages a web based software application, and by means of the application and a communication device, enables a potential customer to connect with persons providing service of a particular kind under the brand name or trade name of the aggregator. This definition is too broad and it has a very wide impact. The online companies will have to be careful in determining their status for each transaction. In some cases they might be in a capacity of an aggregator facilitating the service providers and service receivers, whereas in other cases they might be dealing on their own account.
The person liable to pay Service Tax in relation to service provided by a person involving an aggregator in any manner, is the aggregator of the service. Thus 100% Service Tax would be paid by the aggregator. However if the aggregator does not have a physical presence in the taxable territory i.e. India, any person representing the aggregator for any purpose in India shall be liable for paying Service Tax. Thus, a country manager or liaison for any other purpose will also be required to pay Service Tax on behalf of the aggregator.
To cover multinationals that does not have offices or presence in India it has been provided that if the aggregator does not have a physical presence or does not have a representative for any purpose in the taxable territory, the aggregator shall appoint a person in the taxable territory for the purpose of paying service tax and such person shall be liable for paying service tax. Thus, the companies which want to target the ever-growing Indian economy will be required to appoint a specific person to pay Service Tax.
This industry of discount sites, cab-operators, web-portals, etc. is already facing stiff competition from new entrepreneurs. This added burden of Service Tax is going to leave them confused about determining the cost of transaction and correspondingly going to affect their profits.