Ride-Hailing Startups, Tehran Municipality at Loggerheads Over Taxation

EghtesadOnline: Tehran Municipality intends to charge ride-hailing firms operating in the capital a 2% tax and the startups are fighting the idea tooth and nail.

News ID: ۷۴۸۰۰۶

28 July 2019

Mohsen Pourseyyed Aqaei, managing director of TM’s Transportation and Traffic Organization, told reporters earlier last week, “Tehran Municipality has proposed that online taxi firms should pay 2% of each ride’s fare as tax to the municipality.”

He argues that online taxi firms are “using the city [infrastructure] therefore they should pay a tax to the municipality”.

This was the first time TM officials demanded a share of transportation startups’ income. So far, the urban authorities have argued that they merely want “to monitor and regulate activities” of these firms, according to Financial Tribune.

In an interview with Financial Tribune, Mohammad Jafar Nanakar, Iran IT Organization’s deputy for legal affairs, and Reza Olfatnasab, spokesman of Iran E-Commerce Union, discussed the proposed tax.

State of Affairs

Operating in dozens of cities, Iran’s leading ride-hailing company Snapp reports that it has a 1.7-million-strong fleet, while 800,000 drivers work for Snapp’s archrival Tap30.

Reportedly, the two firms undertake 300,000 trips per day in the capital.

Hence, simple math shows that if the online taxi firms charge users 120,000 rials ($1) for a trip—the average fare is significantly higher—a 2% tax on their operations would generate $2.2 million in annual revenues for the municipality.

As expected, major Iranian startups and e-commerce unionists have strongly censured Aqaei’s latest comments.

The leading Iranian ride-hailing company Snapp has issued a statement on its website slamming the municipality’s push for levying a new tax on its operations as “illegal”.

“There must be a legal foundation for levying taxes on businesses,” the statement read, adding that municipalities should not be permitted to levy new taxes on online taxi firms overnight “simply to claim a share of their revenues”.

Snapp also argues that the new tax would push transportation fees higher in Tehran, pointing out that the move would certainly intensify the raging inflation in Iran.

Since US President Donald Trump pulled the country out of Iran nuclear deal and imposed new sanctions against Tehran last year, the country’s economy has plunged into a state of chaos with prices of almost all goods and services more than doubling. The inflation rate hovers around 40% in Iran.

Zero Legality

Unionist Reza Olfatnasab, in a phone interview, questioned the legality of the municipality’s move.

“As Snapp has pointed out in its statement, the introduction of taxes needs legal grounds. This is while levying such a tax on the activities of online taxi firms has zero legality,” he said.

“E-commerce firms’ record shows that they have always abided by the laws and regulations. If a new tax is introduced through legal channels, startups will definitely pay their fair share.”

Olfatnasab believes that “there should be a transparent mechanism for taxing firms and reporting where the taxpayers’ money is to being spent”.

Fundamental Question

Nanakar told Financial Tribune that the current laws and regulations do not provide Tehran Municipality with the legal framework to introduce a new tax on online taxi firms.

“A key question that needs to be addressed is that online taxi firms fall in which category: Online platforms easing B2C relations or transportation firms?” he said.

“If these startups are categorized as platforms easing business to customer relations, the municipality would have zero jurisdictions over their activities. However, if the startups are categorized as transportation firms, as per the current laws and regulations, they should accept the local taxi organization’s oversight.”

The taxi organization is managed and regulated by the municipalities.

Nanakar adds that even if the latter scenario was valid, the municipality would not have the legal mandate to levy a new tax on these companies’ operations.

“There are laws and regulations based on which transportation companies are taxed,” he added.

Long-Drawn Fracas

There has been a drawn-out fracas between Tehran Municipality and transportation startups over who should be in charge of regulating online taxi firms.

The urban authority says the activities of such startups fall in the municipality’s jurisdiction, a claim strongly rebuffed by startups and government officials.

Snapp in its latest statement says, “As per the law, online taxi firms only need to get a permit from Iran E-Commerce Union. The union operates under the auspices of Iran Chamber of Guilds and the Industries Ministry.”

According to the statement, Information and Communications Technology Minister Mohammad Javad Azari Jahromi supports the establishment of a taskforce, including representatives of the ministries of ICT, industries and interior, as well as the Vice Presidential Office for Science and Technology, to oversee the activities of online taxi firms.

Snapp and other startups active in the sector have thrown their weight behind this proposal.

The uncertainty and the ubiquitous scrutiny of municipalities for long cast a shadow over the operations of ride-hailing startups in Iran. The same issues have hampered the operations of international online taxi firms like Uber and Lyft worldwide. It is yet to be seen who will prevail at the end of this long-drawn row.