Fair play for all parties

Decision 24 of the Ministry of Transport on the pilot management of transport service providers using technology applications expired a year ago (January 2018). Now, how this business model should be managed still depends on the Government’s deliberation. Obviously, the law has lagged far behind reality.


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What traditional taxi firms need to do is fight for equal treatment between them and Grab, or find ways to toughen the legal requirements set down on Grab to the level applied to them, or vice versa 


On December 28, 2018 the HCMC People’s Court ruled that Grab must pay Vinasun VND4.8 billion plus court fees as compensation for the latter. Grab immediately appealed against this verdict.

As one among those who rarely use the services of Grab in Vietnam, the author however supports the launch of its app-based ride service, since it gives consumers another option that is generally cheaper than traditional taxis. Still, as an independent observer, the author finds Vinasun’s lawsuit not completely unreasonable and, therefore, Grab not entirely “innocent” or a “victim” of injustice.

Grab can offer a cheaper service than regular taxi operators do because it is an example of the sharing economy business model, which uses technology to link sellers and buyers together in a peer-to-peer (P2P) mode, through platforms with lower operating costs. However, Grab and its partners, who directly provide transport services, also benefit greatly from the absence of rules equivalent to those imposed on traditional taxi firms. Even if there are such rules, the level of legal requirements is much lower, including tax obligations of both Grab as a business and its drivers as service providers. It should be noted that this is the case not only in transport but also in many other aspects with the emergence of a sharing economy, a phenomenon not only found in Vietnam but also common in the world, costing experts and policymakers much time and effort to figure out an optimal solution to treat the old and the new equally.

Some examples of the difference between Grab and traditional taxi firms like Vinasun in the degree of “being controlled” have been given. Grab vehicles can freely travel where taxicabs are restricted; Grab is subject to a 3% VAT on its revenue, versus the 10% VAT and 20% corporate income tax levied on regular taxi firms; quite a few Grab drivers are professional (working full-time), not just “earning extra income with their free time,” yet these high-income earners pay only little tax, including a 3% VAT on their taxable income, 1% on their common bonus, and 10% on any special bonus worth VND2 million or above for excellent performances as rated by users.

With Grab (and Uber previously), the tax rate it must pay is also a 3% VAT on its revenue, much lower than what traditional taxi firms have to bear (10% VAT and 20% corporate income tax).

Given the above incentives, it is not surprising that the sharing economy business models like Grab with their great advantages in cost have been taking over a bigger market share from regular taxi operators. Even so, it is undeniably difficult for Vinasun or any other firm to prove that Grab is partly supported by the State’s taxation and other discriminatory policies in its market domination (which goes against the law), and what specific damages they have incurred.

That said, some studies around the world have determined the level of losses from a particular perspective, with some specific number. For example, in 2015 it was reported that the introduction of Uber in San Francisco led to demand for using traditional taxis falling by 65% (1). If taxi companies in Vietnam can learn and apply this research method, they will be able to prove the level of damage caused by Grab more convincingly.

Nevertheless, what traditional taxi firms need to do is fight for equal treatment between them and Grab, or find ways to toughen the legal requirements set down on Grab to the level applied to them, or vice versa. By doing so, they will avoid an almost impossible mission: to demonstrate how much money Grab has cost them with its illegal acts, if any. Furthermore, if regular taxi operators only demand some compensation from Grab, the causes of their damages remain there, and they will continue to face the adverse competition from Grab or any other entity with a similar operating model. And of course, so as not to be outdone by Grab or similar enterprises, traditional taxi companies should not just sit there and complain. They need to innovate and apply technology to maintain their competitiveness.

On its part, the Government should introduce appropriate policy changes to ensure a fair playground for sharing economy firms and their traditional counterparts. One simple thing that policymakers can immediately do is to set quantitative limits. Any Grab driver who exceeds such limits should be considered a professional, regular driver, and brought under the same control that is exerted over traditional taxis, including tax payment. Part-time drivers, who actually use their spare time to earn extra income and do not cross the limits, should be subject to more relaxed rules. Such changes will reinforce the policy of encouraging innovation and technology application in the era of the Fourth Industrial Revolution that the Government is strongly promoting.

SGT

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