Drivers that pick up work through Uber are now commanded by the Australian Taxation Office (ATO) to pay GST, meaning the sharing economy has experienced a fundamental shift to ‘level the playing field’ for its bricks and mortar competitors.
This blunts the edge which the ride-sharing app maintained in terms of cost over its competitors, and means that Uber will need to innovate further to stay ahead of the competition.
People who offer their driving services via uberX – Uber’s peer-to-peer sharing economy service that competes with registered taxi services – will now be subject to Goods and Services Tax (GST) from 1 August because their offering falls under the definition of ‘taxi services’, according to a new ruling by the ATO.
The law covering taxi drivers states that they have to register for GST and apply it to all fares, as well as lodge business activity statements for every dollar earned – not from the $75,000 per annum threshold that generally applies to small businesses.
Deputy Commissioner of Indirect Tax, James O’Halloran made it clear that the ATO is no longer willing to make a distinction between digital and physical businesses, and that uber drivers will have to pay tax in the same way that licensed taxi drivers do.
No distinction – or is there?
“The existing law applies equally whether the buyer or seller come together at a bricks and mortar business or via a mobile phone app or a website,” he said. “We understand that people don’t often consider the tax consequences of new and emerging business models. Our first step is to assist taxpayers involved in the sharing economy to meet their tax obligations.”
The question is, who does the ruling level the playing field for? Certainly, it removes, in the ATO’s view, the distinction between a physical taxi service and a digitally procured one. However the taxi industry as a whole – which Uber is now considered part of – isn’t being taxed in the same way that other small businesses are.
This now creates an unfair distinction between Uber drivers and participants in other sharing economy platforms, such as people who rent their rooms out via Airbnb, or offer their services through skills marketplace Airtasker – who only pay GST after earning $75,000 per annum.
Uber has stated it will challenge the ATO’s decision. Depending on the outcome of that challenge, then Uber may wish to go one step further and consider challenging the current law requiring all taxi drivers (regardless of income levels) to register for GST, to bring them in line with other small business operators.
Finding new ways to compete
Uber, which currently takes 20% from each fare, has not confirmed whether the increased costs from the GST will be passed on to drivers or their passengers, but what is clear is that the advantage that its model once offered over competitors in terms of operating costs has now been compromised.
Although the rest of the sharing economy has been spared for now, there is no concrete assurance that they, too, will not fall under further regulation or tax obligations in the future.
This means that there is a greater imperative for collaborative services like Uber to further explore other disruptive or innovative opportunities. Current initiatives include uberRUSH, its delivery service operating in New York City, and the development of driverless cars.
Special thanks to PwC tax partner Suzi Russell-Gilford