Twists and Turns of Taxing Online Taxis: Report

EghtesadOnline: Over the past two days, CEOs of Iranian online taxi firms, government and municipality officials, as well as unionists have had a hectic time on Twitter clashing over the taxation of local transportation startups.

News ID: ۷۴۸۵۷۱

29 September 2019

According to Ali Pirhosseinlou, a Tehran Municipality official, urban managers will not intervene in online taxi firms’ pricing.

However, Pirhosseinlou dropped a bombshell by declaring that “the municipalities will get a 2% cut from each trip's fare”. He did not elaborate on the decision-making

The TM official claimed that in return for paying the money to municipalities, the online taxi firms are to be exempted from paying value-added tax which, according to experts, has zero legality. Municipalities do not introduce taxes and cannot scrap them on a whim, according to Financial Tribune.

As per the law, the Iranian National Tax Administration is in charge of introducing taxes and exemptions.

Pirhosseinlou added that the money collected from online taxi firms “will be used for expansion of public transportation services and curbing air pollution”.

The long-drawn fracas between urban managers and online taxi firms took a dramatic turn on Thursday when Tehran Taxi Organization’s chief, Alireza Ghanadan, took to Twitter.

He announced that a guideline, which purportedly includes the decision to levy the 2% tax on online taxis,  has been penned jointly by all the stakeholders, including major online taxi firms, Vice Presidential Office for Science and Technology, Tehran Municipality and the ministries of industries and ICT.

“The guideline for regulating online taxi firms has been ratified by the industries and interior ministers,” he said.

Ghanadan called the guideline the fruit of “more than a year of intense talks between all stakeholders”.

Curiously, neither the startups nor the union that represents them, Iran E-Commerce Union, have received a copy of the document yet.

On Saturday, when this article was penned, Reza Olfatnasab, the spokesman of the union, and other industry insiders told Financial Tribune that they are yet to receive a copy of the guideline.

Businesses Divided

Managers of the leading online taxi firms have been divided over the introduction of this guideline.

Jhubin Alaghband, CEO of the leading Iranian ride-hailing firm Snapp, wrote on Twitter, “Paying a levy to the municipalities while being required to pay VAT” will force transportation startups to jack up prices.

“This would put pressure on end-users,” he added.

The Russian company Maxim Taxi is also present in Iran. Soroush Falahati, the firm’s deputy for legal affairs, told news website Peivast, that the new levy set to be extracted by municipalities would put online taxi firms at a disadvantage.

Just like other experts, he pointed out that municipalities cannot exempt startups from paying VAT.

This is while Milad Monshipour, CEO of Tap30, tweeted that the guideline is a result of an agreement reached between the government and urban officials on the one side and online taxi firms on the other.

“This is a breakthrough win-win agreement,” he announced.

After posting the tweet, Monshipour went offline, leaving many questions unanswered.

Olfatnasab has fiercely censured government and municipality officials for “introducing the guideline in an underhand move and without reaching a final agreement with business owners”.

He also slammed the officials for not handing a copy of the guideline to the stakeholders.

The unionist also said officials have driven a wedge between the managers of taxi startups as part of a divide and rule policy.

Olfatnasab set up a Twitter poll asking: Do you support regulations requiring startups to pay a tax to municipalities? 58% of the participants answered no, while 20% were undecided.

Hefty Cost

Snapp reports that it processes close to 1 million rides every day. The average fare is 150,000 rials ($1.3). If the firm is required to pay the 2% tax, municipalities would collect $9.5 million from Snapp alone in a year.

Add to this figure the money that Tap30 and other market players would need to pay and one could realize why urban managers are so strongly pushing the implementation of this guideline.

Nevertheless, urban managers have not mentioned the hefty cost of the guideline for startups and customers alike.

Mohsen Pourseyed-Aqaei, Tehran’s deputy mayor for transportation affairs, in a note published by ISNA said the introduction of the guideline is a step in the right direction. The article is titled “Tehran Municipality announces support for internet-based companies”.

However, both the state-affiliated news agency and the urban manager fail to publish details of this much-coveted guideline while offering no tangible reasoning on how charging startups would tantamount to support.

According to TTO chief, preserving users’ privacy, curbing air pollution and overseeing drivers’ activities were high on the agenda when the guideline was being forged.

Ghanadan also said preconditions have been set for drivers to join online taxi fleets and each city’s municipality will be in charge of enforcing the same.

“For operating in each city, online taxi firms do not need to acquire permits from local urban managers. However, they need to forge a deal with that city’s municipality,” he added.

A legal expert, who had been a staunch supporter of startups while pushing for the introduction of transparent regulations, told Financial Tribune, “I have washed my hands of this issue.”

The person did not wish to be associated with the fracas and spoke on condition of anonymity.

Almost all observers believe that the new guideline would lead to a hike in transportation costs and put pressure on end-users.

Furthermore, considering municipalities’ track record of mismanagement and inefficiency, many believe that the money will not be put to good use. Only time will show the ultimate winners and losers emerging from this commotion.