Uber, Careem, SWVL: How ride-hailing services are managing Egypt’s VAT

(Courtesy of Flickr/Aleksandar Cocek)

Ride-hailing services in Egypt have gained tremendous ground throughout the past years, given the difficulties in using public transportation. The legislations and financial position of these companies – namely Uber, Careem and SWVL – has been a topic of debate ever since 2014.

Although initially, the transportation industry is excused from the value-added tax (VAT), the particular service that is provided via ride-hailing apps subjects the drivers to the tax. Thus, the Egyptian Tax Authority expects these transferred amounts just as any other service provider is expected to pay.

The VAT debate
Last month, Uber increased ride fares due to the inclusion of the VAT imposed by the Egyptian Tax Authority. The company had announced to its customers that a decision for a price increase on services UberX and UberSELECT has been put into action since a 14-percent VAT had been imposed upon the company. Thus, the VAT is being paid by the customers as rates per kilo have increased from LE2 to LE2.55.

With the VAT having risen since the past year due to the government’s intention of meeting a tax revenue of LE32 billion, transportation network companies are obligated to make tax payments. Drivers would have had to pay the VAT percentage from their own profits, but since employees cannot afford to do so, companies such as Uber decided to involve the customers and adjust tariffs.

“With inflation affecting drivers’ running costs and events like the inclusion of VAT on the service fees paid by the drivers, as now required by the Egyptian Tax Authority, a slight adjustment has been made to the recommended process so that drivers continue to make a sustainable living,” Uber announced in a public statement.

However, Uber’s competitor Careem has been paying the VAT ever since March 2018. Having started paying a year before Uber, Careem demanded equality in paying taxes particularly since the latter has never done so before.

Meanwhile, other transportation hailing companies have increased in popularity. SWVL is a mobile application that provides transportation services via bus services. It also runs a mini bus service that offers a “one pound only” facility. In the middle of Uber and Careem’s rates becoming pricier, SWVL has become the cheaper and more frequent option.

“We do submit our VAT to the government. However, regarding customer pricing, we have not made any changes yet. We are still observing what is happening in the market. Soon, we are going to take action, but there are no intentions to increase customer pricing,” cofounder of SWVL Mahmoud Nouh tells Business Forward.

The first round of price hikes
With a surge in gas prices by 34.6 percent at the beginning of 2017, Uber had to increase its minimum rates to LE10 for the standard service and LE15 for the premium service. In parallel, Careem raised it base fare, too. Former COO of Careem Ramy Kato had referred to the price adjustment as a means to ease the burdens on the company’s drivers and ensuring its quality of service

The legal debate
At the beginning of 2018, both Uber and Careem faced a possible shutdown in the country due to a lawsuit filed by Egypt’s taxi drivers who intended to sue the companies for using private cars as taxis without legal permits.

However, after the case had been taken to a higher court, a law was passed by Egypt’s Parliament, regulating ride-hailing services and advocating their continuation under specific conditions. Both companies – being the sole players in the market back then – had to adjust their fees and apply specific data-sharing requirements. This included sharing user data for 180 days with authorities “on request”.

At the time, Uber announced in a statement that “this is a major step forward for the ride-sharing industry as Egypt becomes one of the first countries in the Middle East to pass progressive regulations.”

With Uber being a transportation facility in over 700 urban areas around the globe, Egypt is not the only country that tackles predicaments in terms of economic strains or legal struggles.

Only in Egypt?
In the United States (US), Uber has also raised prices in some states including Louisiana and Florida. However, unlike Egypt, the increase in fares does not benefit the drivers – they do not get any share from the raise.

Careem had also upped its fares in the United Arab Emirates (UAE) last year, due to the introduction of the VAT on marketplace services. Uber followed suit.

In several European countries, such as Hungary and Denmark, Uber also faces legal setbacks due to trouble with traditional taxis. Although laws had been passed to shut the ride-hailing service down in such countries, the company is still looking at options to legally operate once again.

Ride-hailing companies have been successful in spreading their services around the world but it seems that regardless of their popularity and user base, cultural restraints and financial legislations worldwide are still catching up with a phenomenon that has been in Egypt for five years now.

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