Opinion
Indian gig workers who offer mobility services deserve GST relief
Summary
- Their numbers have been growing and their welfare has been a policy concern. But the work they do is overtaxed. The rationale of income-tax relief for the middle-class should be extended to this sector.
The Union Budget for 2024-25 rightly focused on promoting inclusive growth and enabling employment-led development in India. With a goal of assisting the poor and vulnerable groups, finance minister Nirmala Sitharaman proposed a scheme for the socioeconomic upliftment of Indian workers as the government tries to help them raise their incomes and attain sustainable livelihoods for a better quality of life.
The number of gig workers in India are growing, whether they are drivers of autorickshaws, taxis or bikes, or those engaged in the delivery of food or groceries, or others working for e-commerce companies. The surge in job opportunities for gig-workers across sectors has led to an increase in government initiatives for their welfare.
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Governments, both at the Centre and in states, are racing to formulate policies for the proper regulation of gig workers, mostly in terms of their economic betterment—by facilitating increased employment opportunities for them. For example, the ministry of labour and employment has created the e-Shram portal for the registration of gig-workers. As of 19 December 2024, as many as 304,802,313 individuals were registered on the portal.
In her budget speech, the finance minister announced that gig workers registered on the e-Shram portal will be provided healthcare coverage under the Pradhan Mantri Jan Arogya Yojana, a move that is likely to benefit nearly 10 million gig-workers.
A large proportion of such workers are ‘mobility gig workers,’ for whom mobility aggregator platforms have created self-employment and earning opportunities in huge numbers over the past decade or more. This group includes drivers of autorickshaws, cars and two-wheelers.
Income generation has been agnostic of the business model that these platforms may have followed. They typically have either a commission model or software as a service (SaaS) model. Under the former, the driver gets a share of the fare that a customer is charged, while under the SaaS model, the driver pays the platform a nominal subscription fee for its service and then earns the entire ride fare as negotiated with a passenger.
As is evident, the SaaS model in essence represents the digitization of the traditional ride-hailing model, with drivers paying platforms for the use of a software system that enables them to access passengers and undertake rides.
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Mobility aggregators invest in driver training, safety mechanisms for drivers and passengers, driver insurance and so on. On-boarding by aggregator platforms turns gig workers into independent entrepreneurs who have control of ride fares. They must possess sufficient digital literacy to operate an aggregator app, access maps on the internet and accept online payments.
Around 1.7 million gig-workers were engaged in the Indian mobility sector in 2020, as estimated. This number is expected to rise to almost 4.3 million by 2030. Their earnings depend on the city they operate in and the mode of transport they have—car, autorickshaw or bike.
For example, working for 10-12 hours in Bangalore, an auto driver earns an average monthly income of about ₹45,000- ₹50,000, while a taxi driver earns an estimated ₹75,000- ₹80,000 after considering the costs incurred on the vehicle, fuel and other overheads. With such a level of earnings, they do not fall under the taxable-income bracket, just as traditional ride-hailing drivers operating offline do not.
Considering this and the fact that mobility gig-workers are self-employed individuals typically earning no more than ₹20 lakh per annum, they rarely cross the goods and services tax (GST) thresholds for taxability. However, GST at a rate of 18% is levied on the subscription fee under the SaaS model and a further 5% on the ride fare. This is too high, given that majority of these drivers do not even qualify for direct income taxation.
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To be sure, the 18% GST imposed on the subscription fee for platform usage is valid, as per the mandate of India’s GST law. But the additional 5% tax imposed on the ride fare earned by drivers is an unwarranted burden. As drivers under the offline model of ride-hailing do not have to bear this burden, there is no reason why those operating under the SaaS model should be required to do so. The high cost of essential mobility services could even push drivers back to the offline model, instead of becoming part of Digital India by signing up with aggregators.
In the latest budget, India’s finance minister raised the income-tax threshold for the salaried class to an annual income above ₹12 lakh, acknowledging a need to leave more money in the hands of middle-class taxpayers. In the same spirit, the GST Council should review tax rates and consider who is being impacted by GST levies in the field of mobility. It should weigh the likely benefits of eliminating the additional 5% GST.
Higher disposable income in the hands of drivers and users will increase their purchasing power, which would in turn lead to greater spending and thus higher overall GST revenue.
These are the authors’ personal views.
The authors are, respectively, professor, Indian Council for Research on International Economic Relations (ICRIER) and counsel, PLR Chambers.
