Taxi hailing companies are already facing a business slowdown
Ride users will be compelled to pay 15 percent Value-Added Tax (VAT) on every trip they make, if a new bill drafted by the Ministry of Finance is approved by the Parliament.
Drafted by experts drawn from the Ministry and federal tax authorities, the new bill amends the existing VAT proclamation that was legislated in 2002.
The last amendment was done in 2019 when the government revised the VAT accounting period from one calendar month to three calendar months based on the annual turnover of a taxpayer.
While the newly amended VAT proclamation will see several changes, one will be to revise businesses that will be exempted from VAT. The transport sector is currently among those exempted from tax, a measure taken to reduce the burden on the poor.
However, the newly amended draft proclamation will exclude users of transport vehicles with less than eight seaters from VAT exemption.
Users of taxi hailing and other cabs will be required to pay 15 percent VAT for every transaction. Based on the current practice, ride users do not pay VAT.
However, the taxi hailing companies with the ride platform will be required to pay 15 percent VAT on every commission they make. Drivers, on their part, were paying a presumptive tax.
Currently, there are over three dozen taxi hailing companies, while they are believed to pay over 350 million birr in taxes, along with the drivers whom they have partnered with.
Users are charged between 12 birr and 20 birr per kilometer depending on the time. This is on the top of the 95 birr initial fare, a minimum payment customers are required to pay no matter how far they go.
ZayRide is among the pioneers in the taxi hailing business in Ethiopia, which started to boom since 2015. Its general manager, Habatmu Tadesse, fears customers would be discouraged from using taxi hailing services if they are required to pay VAT.
“The business is slowing down already because of surge in price of fuel,” said Habtamu, who suggests the government to look for another option in order to increase tax revenues, such as expanding the base by including Code 2 cars in the taxi business.
Ever since the price of fuel was adjusted by over 35 percent last month, taxi hailing service providers have been complaining of a fall in earnings, as customers shift to other options, including minibuses and buses.
Wez is among the new entrants in the business whose application has been downloaded by over 10,000 users.
“As we are already experiencing a fall in the number of users, it is likely there would be a downturn if VAT is going to be levied on consumers,” said Narods Addis, founder and CEO of Wez.