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5% VAT on E-hailing services will invariably raise prices

  • Published at 01:35 am June 11th, 2018
Photo: Rajib Dhar

'E-hailing industry in Bangladesh is in its’ early stage and the sector needs government assistance in order to grow and bring forward mass adaptation'

E-hailing services such as Uber and Pathao have slapped with a 5% value added tax (VAT) in the Budget FY19 on June 7, which is invariably going to raise the price for rides. 

The National Board of Revenue (NBR) on Thursday issued a statutory regulatory order (SRO) in this regard saying the services are taxed under the “virtual business”.

According to the SRO: “The VAT would be applicable on the percentage of charges earned by those ride-hailing services.”

Stakeholders claimed the imposition of VAT on the service will make the consumer-friendly ride sharing services more costly affecting the pockets of middle-class.

Contacted, Chief Executive Officer (CEO) of Pathao Hussain M Elius told the Dhaka Tribune: “The  imposition of VAT on the industry will not only place a burden on existing service providers but also deter newcomers and VAT on this service will surely increase the prices.

“E-hailing industry in Bangladesh is in its’ early stage and the sector needs government assistance in order to grow and bring forward mass adaptation.”

While asked how the VAT will affect the price consumers have to pay, Elius said that the VAT will be imposed either on the riders (drivers) or the customers (service receivers).

“Both parties will be reluctant in using the service, leading to an overall decrease in people availing E-hailing services.”

The Pathao CEO further said that Pathao has a significant role in reducing the unemployment problem in Bangladesh; however the VAT imposition may turn the table around.

A frequent user of E-hailing services, Tarek Mahmud, regularly uses them to go to work in Motijheel from Mirpur. 

“The journey to office became very convenient because of these E-hailing services such as Pathao and Uber.  The government was supposed to ensure commuting services for the passengers, but these companies are doing that instead in a cheap and hassle free way. The government shall not have put VAT on these services considering many aspects.”

Leading commerce chambers including Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) and Metropolitan Chamber of Commerce and Industry has urged the government to withdraw VAT on ride-sharing services until the completion of projects like metro rail, elevated expressway and considering the impact of these services to address the transport needs of the general public.

Currently, there are around 20 E-hailing services in the country that will be affected by this VAT placed on the industry, including Uber, Pathao, Sohoz, FlitBD and SAM, operating in big cities particularly in Dhaka and Chittagong.

According to Pathao, the company has around 30,000 registered riders who make about 50,000 riders per day in five cities - Dhaka, Chittagong, Sylhet, Gazipur and Narayanganj.

US-based Uber Technologies Inc, which launched their E-hailing service in Dhaka on November 22,2016 currently has 10,000 drivers joining Uber every month, insiders says.

The Dhaka Tribune reached out to Uber for comments on this issue but had not received a response from the company when this story was filed.