Imposing taxes on innovation risks Golden Goose and the gig

The swift expansion of India’s gig economy represents a double-edged sword for millions of workers thronging a vulnerable yet opportunity-opening space.
This expansion starkly contrasts with the Prime Minister’s vision of fostering employment generation, as GST authorities appear to undermine innovative models that create jobs without offering any government support or incentives.
According to a NASSCOM-Aon report, the country’s gig workforce is projected to soar from 7 million in 2021 to 23.5 million by 2030, increasing its share of the total workforce from 1.5 per cent to 4.1 per cent. Technology startups and IT firms are fueling this growth, with IT gig workers accounting for 30 per cent of the sector, as per job portal foundit.com.
Platforms leveraging SaaS (Software/ Subscription as a Service) solutions have been pivotal in this transformation. These apps have disrupted retail, professional services, home services, and ride-hailing transportation, contributing to the ease of living of the citizens at large and creating 350 million gig jobs projected by 2025. These platforms provide gig workers unprecedented access to income opportunities and flexibility while fostering innovation within the broader economy.

Grim reality

While innovation thrives, the burden of dual taxation and rigid, standardised tax frameworks poses serious challenges. Consider ride-hailing companies, for instance—they have revolutionised urban mobility with their innovative models, responding swiftly to shifting consumer needs. Yet, these same innovations are stifled by tax policies that fail to accommodate the dynamic nature of the gig economy.
Recently, subscription-based services have emerged, where drivers pay a fixed fee for lead generation while passengers and drivers settle fares independently. This model enhances driver earnings and eliminates surge pricing concerns. At the same time, it alleviates long-standing driver community complaints of exploitation and missing earnings.
Despite these payments occurring outside the platform’s direct involvement, the insistence on levying GST on transactions between riders and drivers appears illogical and distortionary. Platforms are already taxed on their subscription revenues, and drivers are taxed on their earnings. Adding another layer of taxation is adding needless burden on the workers and the gig economy.

Stifling livelihoods

For gig workers, this means less take-home pay, fewer opportunities to sustain their livelihoods, and a growing sense of insecurity in a sector they once viewed as a lifeline. An archaic approach to taxation risks dismantling a crucial employment avenue for millions.
India’s gig workers don’t need more burdens—they need enabling and supportive policies. The innovation economy and startup ecosystem, pillars of growth and job creation, require a tax system that enables their survival and prosperity, not suffocating them with unfair and shortsighted policies.
Platforms designed to empower these workers now face a paradox: innovate to uplift gig workers or succumb to the financial strain imposed by needless taxes.
With this approach of the tax authorities, about 20 lakh gig workers per day who came into the digitised world with the SAAS-based model, will go out of the digital economy and back to cash-based economy, hence defeating the push of the govt. Towards a digitised economy.
Pragmatic tax policies can empower startups, support millions of livelihoods, and sustain India’s trajectory as a global innovation leader. A sector that thrives on innovation needs enough bandwidth to experiment with different models without the tax authorities breathing down its neck. The Government must adopt a flexible approach to taxation instead of one-size-fits-all across the board. Otherwise, it would have a dampening effect on innovation and work at cross-purposes with several government initiatives such as Digital India, Make in India, and Start-up India, which all demand an enabling environment.
Sanjay Malhotra, the former revenue secretary and now the Governor of the Reserve Bank of India, aptly remarked, “We are not here only for revenue collection; we are also here for the country’s economy.” His call for pragmatic tax policies prioritising economic growth over revenue extraction is a timely reminder of the need for reform. A compelling illustration of this principle is India’s digital public infrastructure, which has been a driving force in addressing social and economic challenges while fostering innovation. India’s deployment of advanced technology has helped tackle several of its social and financial difficulties.

Earning with dignity

The spread of the digital public infrastructure has transformed the lives and livelihoods of several hundred million citizens. By the government’s admission, over 500 million citizens now have bank accounts because of the laudable JAM ((Jan Dhan, Aadhaar, and Mobile) trinity and UPI. This financial inclusion initiative has helped individuals to create sustainable livelihoods in the growing gig economy.
The UPI network, in particular, has enabled citizens to earn with dignity and securely manage their savings, driving a transformative shift in economic participation. Private entrepreneurs have leveraged this infrastructure to develop innovative business models that cater to a growing economy. Startups have redefined traditional industries from food delivery and digital education to remote healthcare cloud kitchens and road transportation, considering the dynamic changes caused to the sector by startups.

A call for tax reforms

Here are some statistics on how well India’s startup ecosystem is thriving. As of May 2024, the Indian Startup Ecosystem ranked third globally in unicorn count and was collectively valued at $349.67 billion. According to startup research rm Tracxn, India has over 412K plus startups.
Yet, its continued success hinges on policies that support, not hinder, growth. SaaS platforms attempting to empower gig workers are caught between the promises of innovation and the harsh realities of punitive tax practices. The gig economy is more than a statistical growth story—it represents the lives and aspirations of millions striving for better livelihoods. India must align its tax system with fairness, adaptability, and innovation principles.
Only then can the nation truly harness the transformative potential of its gig economy while protecting its most vulnerable contributors.

Pranjal Sharma is an economic analyst and author of The Next New.