In a time when online companies, especially in the services aggregation model are adopting various discounting models and cashback offers to lure and acquire new customers, perhaps, the costs are being borne not just by the venture capitalists, but also the government.
Whilst the founder Deep Kalra was in spotlight at the startup India event, the Nasdaq-listed travel company MakeMytrip had a run-in with the tax authorities of India. According to the Directorate General of Central Excise Intelligence (DGCEI), MakeMytrip has failed to deposit all of the service tax the online travel aggregator has collected from the public. An executive from the company was taken into police custody for the same and later released on bail.
Currently, Makemytrip charges 14.56% service tax ( Included in the bill) on all its B2C as well as B2B transactions. During a five-year-period from October 2010 to September 2015, the company had collected service tax worth Rs 83 crore, of which Rs 67 crore had not been deposited to the government’s account, PTI quoted a source as saying.
Makemytrip, as well as other online travel aggregators like Cleartrip and Yatra contend that since they operate as intermediaries, and not service providers, the service tax owed by them should be on the amount charged to the vendor ( The hotel or the airline) and not on the entire amount of the transaction.
In response to the tax regulators, Makemytrip has sent the following statement to the media:
At MakeMyTrip, we strongly believe in an ethical, transparent and compliant corporate culture and abide by all laws and regulations of the country. The service tax case in question is potentially an industry issue that can impact all Online Travel Agents (OTAs). We have a strong case as advised by our tax advisors and therefore will be contesting the matter with the appropriate authorities. We are extending our full cooperation to the authorities in the investigation. Further, the company official who was detained by the authorities has already been released.
In other news, MakeMyTrip had recently received $180 million investment from China’s Ctrip International, making it one of the biggest investments in travel space for an Indian company. It’s also venturing into the budget hotels segment, in a bid to compete with Oyo rooms, its biggest competitor in the online hotel booking segment.