The ride-sharing issue: It's not about taxes

Published 09.10.2019 02:06

Ride-hailing services are already an indispensable part of many countries' transportation system. Even in some cities, like Los Angeles and Las Vegas, ride-sharing apps shoulder the burden of traffic more than public transportation.

However, in some countries such as the U.K., Italy, Denmark, and Greece, they face serious problems because of political, economic, environmental and national security issues.

In this article, I will discuss the global ride-hailing giants, examine the economic consequences and focus on the taxation of this system around the world as well as in Turkey. I will also explore whether this system benefits the traffic problem in Istanbul.

Facts on the issue

The most well-known ride-sharing services are Uber, Lyft and Didi. Founded in 2009, Uber Inc. operates in over 700 cities and 65 countries worldwide. Its average number of daily trips exceeds 15 million rides.

Launched in 2012 and operating in over 300 cities across the U.S. and Canada, Lyft Inc. gives over 1 million rides per day. Both of them are tech firms based out of Silicon Valley.

The Chinese giant Didi, one the other hand, is the second-largest ride-hailing company in the world, operates in 400 cities, mainly in China and Brazil, giving over 30 million rides every day.

Entering the Turkish market, mostly Istanbul, in 2014, Uber worked with 12,000 drivers/partners. Over 4 million users have downloaded its app. However, after some time the competitive relations between Uber and Istanbul's local taxi industry soured.

The union of taxi drivers took the issue to court, asking the authorities to block access to Uber's app. In the end, Uber Inc. suspended its UberXL services in May 2018 and has been operating only with yellow and turquoise cabs since.

The taxation process

Opponents of ride-sharing apps, mainly taxi owners and cabbies, criticized the apps for not paying taxes in Turkey. However, taxi owners themselves are under scrutiny about their tax files. According to article 48/2 of the income tax code, if a taxpayer's revenue is under TL 60,000 (2019) and complies with the regulations under articles 46 and 47, they gain special status, paying less tax and being exempt from many responsibilities.

Because of this status, for example, they are free of bookkeeping, tax withholding and value-added tax (VAT), and they can even benefit from extra deductions. According to article 89 of the income tax code, they can get an extra TL 9,000 deductible from their profit.

Tax benefits provide taxi owners paying nothing in names of taxes depending on their revenues and expenses, mostly in cash. Besides, the lack of an audit mechanism of this system makes the tax evasion bigger.

Even the sale of cab plates has been exempt from taxation as of April 2018 according to duplicate article 80. Moreover, buying cabs by the owner is free from excise tax, based on the provisional tax code 7.

One of the main reasons for stopping Uber's operations was that it would not pay tax. However, taxing ride-hailing firms, on paper, could be easy and auditable as the money transactions usually occur via apps.

Through the app and credit card payment, significant tools against the shadow economy, the taxation process becomes more transparent, reliable and cost-effective. For example, because of transparency, it is easier to see if they exceed the tax threshold set in article 48/2 of the income tax code.

It means that they will not benefit from the VAT exemption set out in article 17/4-a and will have to pay VAT. Even, in 2018, the app-based company began to pay taxes based on the 20% commission to the Tax Office in Turkey though the e-billing system.

Alongside its economic advantages, it lures the passengers through their user-friendly apps, car-pooling options, reliability and accessibility, and all within well-maintained, clean cars.

Monitoring the routes from phone screens, sharing routes with friends while on a trip and being able to review other user feedback are the other technical advantages. Riders do not have to wait long to find an Uber car during peak hours on a rainy day. In addition, it is possible that this trend can spare passengers the cost of buying cars that mostly sit idle. Therefore, natural advantages are convenience and cost.

Conflicts in the system

Although this global system offers advantages related to the positive economic outcomes, taxation and employment opportunities in the short term, many other factors should be considered in local contexts.

In the long run, cities should focus on their environmental issues, transport planning and the real needs of commuters. In some cities, ride-sharing services cause significant problems, blocking streets and pulling people away from public options, causing a rise in fares and carbon emission in the long term.

For example, New York City wants to place limits on ride-hailing firms as they create congestion. The Beijing Municipal Commission's Director Zhou Zhengyu identified ride-sharing services as the reason for increasingly worsening traffic backups and pollution in the city.

London is trying to revoke Uber Inc.'s license because of falling standards. Even, in their homeland in Austin, Texas, Uber and Lyft were not allowed to do business for a while due to security reasons.

For instance, these platforms pay fewer taxes, as they consider that drivers are indeed partners/self-employed instead of workers or employees. In this way, the company avoids responsibility for minimum wage and of fundamental social rights such as sick-leaves and employment insurance.

However, this policy seems to change after California legislators agree that workers must be designated as employees instead of contractors and have recently approved a related bill.

The Istanbul example

Unlike many cities, Istanbul, with its more than 16 million population and unique city planning, has its own dynamics in the transport system, such as infrastructure, congestion and air pollution. Along with the discussion of the taxation of the ride-sharing system, these factors should also be taken into consideration.

There is no doubt that the current number of cabs in Istanbul, at around 18,000, is far below what is required. This number should be increased substantially during peak times in some specific regions, but an uncontrolled increase can ruin traffic as the road infrastructure of this city is inadequate to deal with the high volume of traffic.

For instance, a research published in the Science Advances journal shows that time lost in San Francisco congestion rose by 62% because of ride-hailing vehicles. Therefore, Istanbul's transport infrastructure should be the biggest reason for not allowing any new ride-sharing systems to operate in Istanbul.

Besides, not surprisingly, the inordinate number of cars on the road has a considerable impact on air quality, as carbon emission is a major contributor to air pollution and climate change.

Istanbul is one of the most densely populated cities in the world and this record crowd can be hauled by improving the efficiency, reliability, and comfort of public transport and by encouraging people to use it.

Moreover, authorities should respond to the complaints against errant taxi drivers constructively. The problems caused by cabbies could be solved simply by enforcing existing laws more rigidly.

Authorities could increase the number of cabs in the streets in peak hours in a controlled manner, rather than legalize any ride-sharing company posing a grave threat to Istanbul's already congested roads. In the long term, these are the best ways to solve the problems.

Lastly, Turkey has cogent reasons for not issuing a license to the global ride-sharing firms, and instead of using taxation or economic issues as excuses, which are also sound reasons, the counterargument should be based on more convincing and legitimate reasons such as the capacity of infrastructure, congestion and pollution.

* Tax auditor at the Turkish Tax Inspection Board

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