Kenya's taxman has passed the responsibility of paying value added tax from the companies behind the platforms that drivers use to find passengers to the car owners themselves.
The Kenya Revenue Authority was responding to calls from traditional cabbies to ensure that drivers on Uber and other hailing apps pay VAT and other levies. The argument behind the protests by traditional cab drivers was that drivers on hailing platforms were able to undercut them with low prices because they did not pay taxes, and this move appears to be aimed at closing this loophole.
According to KRA, platforms 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 also clarified VAT for taxis is charged on “the supplier of such services” thus effectively transferring the tax liability to owners of vehicles signed up with all taxi hailing apps.
According to KRA, the threshold for paying VAT begins when a vehicle owner carrying out taxi business that grosses a turnover of Sh5 million (US$49,000) a year.
This move by KRA is likely to impact taxi companies such as Pewin and Kenatco, who already pay levies to the government. Companies with massive war chests like Uber are able to cushion themselves from these additional taxes. Uber has in the past insisted that its driver-partners are not employees, but rather independent operators who are responsible for their own tax affairs.
Uber is Kenya’s biggest cab-hailing service, with more than 1,000 drivers who make about 10,000 journeys in a day in Nairobi, Mombasa, and most recently, Thika. Uber is seen as the biggest winner bearing in mind the tech giant will not have to pay VAT on revenues earned in Kenya.
Uber 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.
Little Ride, which is a joint venture by Safaricom and Craft Silicon, is reportedly mulling a move to stop 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.
Little Ride presently records about 3,500 journeys daily from its pool of 1,600 active drivers, and is Kenya's second biggest taxi hailing app. It launched in Nairobi in July and expanded to Mombasa earlier this month.