The competition in India’s dynamic ride-hailing market is heating up with each passing year, prompting companies to explore innovative strategies to attract customers. In a bid to expand their market share, Ola and Uber are taking a page from the playbook of their rivals like Namma Yatri and Rapido. They’ve introduced subscription-based plans for auto-rickshaw drivers on their platforms, eliminating the need for booking fees or transaction commissions.
In particular, Ola has recently rolled out a subscription model for auto-rickshaw drivers in key markets such as Delhi-NCR, Mumbai, Bengaluru, and Hyderabad. On the other hand, Uber launched it in more than six cities, including Chennai, Kochi, and Visakhapatnam.
How Ola, Uber Subscription Work
Now, let’s understand how Ola and Uber’s subscription plans work for auto drivers.
Under the traditional commission-based fee structure, Ola and Uber collect a percentage of each ride fare as a commission or booking fee, with the remainder passed on to driver partners.
However, with the new subscription model, these platforms charge a fixed daily or weekly fee to driver partners for unlimited ride access, granting them an unlimited number of rides without additional charges. This approach aims to provide drivers with more predictable earnings and incentivize increased use of the platforms.
But what motivates Ola and Uber to adopt this subscription model? Well, one key implication of this model is its potential impact on tax liabilities.
By shifting from a commission-based fee structure to a subscription-based one, Ola and Uber may be strategically navigating tax regulations, particularly the 5% goods and services tax (GST) typically levied on auto-rickshaw rides arranged through their platforms. This strategic manoeuvre could offer financial benefits to both the platforms and their driver partners.
However, the launch of subscription plans by Ola and Uber could indeed result in disputes with tax authorities, primarily due to uncertainties surrounding the applicability of a specific advance tax ruling issued in September 2023. This ruling exempted Namma Yatri from the obligation to collect and remit Goods and Services Tax (GST), but its extension to other platforms remains unclear.
The 5% GST mandated under Section 9(5) of the Central GST Act imposes tax collection responsibilities on companies operating in ride-hailing, food-delivery, and online retail marketplaces. These companies are required to collect and remit taxes on behalf of the service providers listed on their platforms, which include drivers, restaurants, and sellers.
“If an operator connects a driver to a passenger, by that alone, they do not become liable to pay tax. The element is supply being made through them, which also needs to be fulfilled. So, unless other companies are able to get factually out of supply not being made through them or controlled through them, Section 9(5) (of CGST Act) will most likely apply,” said Abhishek Jain, national head and partner, indirect taxes, at KPMG in India.
Benefits and Challenges With Subscription Models
According to executives familiar with the subscription model, there are both advantages and disadvantages associated with its implementation. One notable benefit highlighted is the concept of loss aversion. By paying a fixed amount per day, such as Rs 30, drivers may feel more committed and engaged with the platform, thereby enhancing driver retention and overall participation.
However, a key drawback mentioned is the potential loss of control over pricing by the platform. With a subscription model, drivers have more flexibility in setting their own rates for rides, which could impact the platform’s ability to standardize pricing and manage profitability.
Another viewpoint from a Bengaluru-based executive highlights the competitive dynamics fueled by younger companies embracing the subscription model in the ride-hailing industry. These smaller platforms are strategically leveraging subscription-based approaches to aggressively attract and onboard drivers, thereby establishing a strong and diverse supply base. This strategy poses a direct challenge to larger incumbents that have historically maintained control over pricing and commission structures.
The adoption of subscription models by Ola, Uber, and Rapido reflects a broader trend in the industry where ride-hailing platforms are seeking innovative ways to enhance driver engagement, optimize revenue streams, and navigate regulatory complexities. What are your thoughts on this shift towards subscription-based services? Let us know in the comment section below!
