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Economy

Relief for Uber as taxman shifts VAT headache to car owners

Times Tower, the headquarters of Kenya Revenue Authority (KRA) in Nairobi. PHOTO | FILE
Times Tower, the headquarters of Kenya Revenue Authority (KRA) in Nairobi. PHOTO | FILE 

The Kenya Revenue Authority (KRA) has shifted the burden of paying value added tax for e-taxi hailing to car owners, handing Uber -- the US tech giant -- a major reprieve.

The taxman made its position known in response to reports that it was targeting e-taxi operators such as Uber and Safaricom-backed Little Ride for consumption tax by ensuring their cab prices are VAT-inclusive.

The KRA now reckons that firms such as Uber, Little Ride, Mondo Ride, and Taxify are IT firms that only provide a software to power the taxi industry.

“The companies listed do not actually offer taxi services, but they provide a platform or an app that assists taxi operators in their activities,” said Benson Korongo, KRA’s commissioner in charge of domestic taxes.

Mr Korongo told the Business Daily that VAT for taxis is charged on “the supplier of such services”, effectively transferring the tax liability to owners of vehicles signed up with taxi hailing apps.

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The threshold for beginning to pay VAT is if a vehicle owner carrying out taxi business grosses a turnover of Sh5 million in a year, the tax agency said.

“Where there is failure to comply then such cases are detected through the audit and compliance monitoring programmes,” Mr Korongo. The KRA’s 360-degree about-turn on taxing taxi apps has split major players in Kenya’s cab market, some of whom have been paying VAT.

The position is seen as controversial because it leaves taxi companies such as Pewin and Kenatco in the net while letting go of bigger players in the market such as Uber.  

Uber – the biggest player in Kenya’s taxi market with more than 1,000 drivers and about 10,000 journeys a day – is seen as the biggest winner given the tech giant had passed the trouble of paying VAT to its registered drivers.

“Uber driver-partners are not employees, but independent operators who are responsible for their own tax affairs,” a spokesperson at the firm told the Business Daily last week.

The American ride-hailing app announced in May that its Kenyan operations had logged more than a million journeys -- totalling eight million kilometres -- since launching in Nairobi in January 2015. It expanded to Mombasa in March this year and later to Thika in June.

Little Ride reacted to the taxman’s new position by saying it was mulling stopping payment of VAT.

“We are also in discussion with KRA on provision of information. If we get a green light from them, we would stop the same,” said Kamal Budhabhatti, chief executive at Craft Silicon, the firm which developed the app.

Little Ride presently records about 3,500 journeys daily from its pool of 1,600 active drivers, and is ranked the second biggest e-haling app in Kenya. It launched in Nairobi in July and expanded to Mombasa early this month.

State-owned Kenatco, whose fares are VAT-inclusive, protested KRA’s treatment of e-hailing apps such as Uber and Little Ride, saying these are not software providers but taxi operators.

“They are not IT firms. If that was the case, they should just provide the app for a fee. However, these apps handle taxi operational functions such as setting prices, quality standards and driver recruitment,” said Kenatco receiver manager John Ndung’u.

All the apps -- Uber, Mondo Ride, Little Ride and Sendy (both backed by Safaricom), Maramoja, Dandia -- have fixed the tariffs for drivers who sign up, and take care of customer service.

Kenatco paid Sh3.3 million in VAT to the taxman in September, a cost Kenatco attributes to making its fares higher than e-taxi firms.

He said that Uber was engaging in tax avoidance by “segmenting their revenue to many partners since the partners will not reach the Sh5 million threshold and therefore evade paying VAT”.

Interior principal secretary Karanja Kibicho in February set up a taskforce to review the operations of ride-hailing apps such as Uber after regular cabbies in February threatened to go on strike, protesting an uneven playing ground.

The taskforce was chaired by Competition Authority of Kenya boss Wang’ombe Kariuki and has never made public its findings.

“All taxi operators should be subjected to the same tax and levy regimes irrespective of how they are registered since they are doing the same business and serving the same clientele,” said Corporate Cabs Association, a lobby group of more than 20 taxi firms.

“Uber lies that it is a technology company.  It is not a technology company because they directly manage their partners and all the operations. They receive money from customers and issue receipts,” the group said.

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