Tax disputes continue to embroil online travel portal, MakeMyTrip (MMT), with the income tax department slapping a new tax demand notice of $14 million on the company.
According to the firm’s annual report for FY17 released on Tuesday, the income tax notice was served in December last year. MakeMyTrip has also received a service tax demand of $37.9 million and $35.4 million in October last year for its subsidiaries ibibo India and MMT India respectively.
The additional service tax demand came just a month after the Supreme Court in September, 2016 issued an interim ruling staying the Delhi HC’s order which had directed the Directorate General of Central Excise Intelligence (DGCEI) to refund the tax deposit. It may be recalled that in January, 2016, a senior company official was also arrested by the tax department sleuths for alleged service tax evasion.
The annual report for FY17 filed with the US Securities and Exchange Commission (SEC), stated, “In December 2016, MMT India received an assessment order from the Indian tax authorities (Income Tax department) for assessment year 2013-14, and a demand for additional tax payments of approximately R91.2 crore (approximately $14.1 million), advising MMT India of an upward revision of its declared income in India for that assessment year”.
The dispute between the company and income tax department is on three accounts: an increase due to insufficient payments on withholding taxes on reimbursement of expenses to MMT USA, an increase for advertising and publicity expenses being capital in nature and an increase for expenses on account of employee share options exercised during the year being capital in nature.
MakeMyTrip is contesting the above mentioned demand.
In January this year, MMT merged with ibibo group after it got approval from the Competition Commission of India. After the merger, the US listed company increased its revenue from its India operations as a percentage of its total revenue from 87.3% in FY16 to 92.8% in FY17.
The merger in the fourth quarter of FY17 also helped the company to increase its revenue by 33.2% to $447.6 million in FY17, compared to the revenue of $336.1 million in the previous financial year.
MMT India and ibibo India have made pre-deposits of $10.4 million and $1million respectively with the service tax department. The annual report of the company also stated that the Mauritius based company is also wary of the concept of Place of Effective Management (PoEM) – which is meant to ascertain the residential status of companies and used to curb tax avoidance – that is going to be implemented from this financial year, and the newly rolled out GST tax regime that the company expects will increase its tax compliance costs.