Kenya Revenue Authority exempts Hailing Services from VAT payments, Owners to bear Burden

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The entry of taxi hailing services in Kenya has been quite interesting, seeing the disruption these services have brought in the marketplace. Uber, which is by far the most popular of these services took the market by storm and the competition it presented led to taxi drivers taking to the streets to complain. These services have also been a challenge for the Kenya Revenue Authority which has been looking to collect value-added tax. Uber and other taxi-hailing services have continually insisted that they are software companies and not transport companies.

The Kenya Revenue Authority has now stated that the burden of paying value added tax will no longer rest with the taxi hailing services but with the owners of the vehicles.  The move which may prove unpopular with traditional taxi operators comes as a major reprieve for the cab hailing service providers. Quoting KRA’s commissioner in charge of domestic taxes, local paper Business Daily says that taxi hailing services do not offer taxi services but provide a platform or an app that assists taxi operators in their activities. As such, VAT can only be charged by the supplier of taxi services effectively transferring the burden of payment to the owners of the vehicles.  The paper further says that the threshold for VAT payment by taxi companies is KES 5 Million. In a previous media session, Uber’s General Manager forEast Africa said that Uber drivers were independent contractors and as such handle their tax matters independently.

In the case of Uber, the passing of VAT payments to the owners will further place pressure on earnings. The company slashed prices of rides by nearly 35%, a move its drivers protested. Uber still maintained its cut from driver earnings at 25%, the highest in the market.This announcement means that total earnings by both drivers and owners may further diminish reducing the lucrativeness of the services. It will be interesting to see how the company handles this matter, which is likely to create a rift with its drivers and partners.

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