Disclaimer: This opinion piece does not necessarily represent the views of BandwidthBlog, its employees or its affiliates, but is from a third-party and is solely those of the author.
By Grant McGlashan
So I think we have all been following this Uber debacle with some interest over the last six months. My interest stems from the fact that I have a shareholding in a company that provides some technology services to the metered cab industry and have worked closely with some of the legitimate operators for the past five years and see the effect that Uber is having on some of their businesses. I think more will soon start to realise the effect Uber is impacting on their businesses in the months to come, hopefully it won‘t be too late for them to start doing something about it.
It‘s David, the legitimate transport operator, versus, Goliath, Uber the Juggernaut bully, who oddly enough is not a transport company according to their website but definitely would appear to be one. Uber simply flouts its way into a market and disrupts the status quo with complete disregard to the law and those churned up and spat out in their wake.
If no one has figured out their entry strategy to their business model yet, it is simple, enter the identified market illegally, say they are not a transport company and therefore exempt from any regulation, the best part is that they push the onus on regulatory compliance on to the unsuspecting driver/car owner (who“¦ you guessed it“¦ aren‘t doing this), then gain as much market share as quickly as possible by whatever means possible and when challenged by the law, call on their war chest of funds to attack, threaten law makers and change policy.
This definitely isn‘t a company built on any kind of moral backbone to try and do things within in the boundaries of the law and their tactics to eliminate and sabotage the competition is shameless to say the least based on what has been reported overseas.
Although in my opinion this is not all bad and e-hailing applications will ultimately redefine and reinvigorate the current legitimate industry players and bring them into the technology age, it has to happen. Let‘s be honest the barrier to entry is not difficult with regards to the App and there are many similar type of applications out there. It‘s how you secure market share that becomes the challenge. And they are here or are coming and will compete with Uber but also play within the law and are partner with legal operators. I guess the question is whether Uber will employ the same tactics they did to Lyft and other e-hailing applications to sabotage these businesses.
I think we are all capable people in obtaining information on what impact Uber is having worldwide so I‘m not going to harp on it. A simple Google search will highlight many an article with the majority I might add not being very favourable to Uber. Keywords like rape, assault, illegal, tax avoidance frequent the headlines with other concerns like user information privacy under scrutiny by law makers and threats to spy and dig up dirt on journalists that criticise them seem to dominate headlines. We are talking about a company whose CEO Travis Kalanick reportedly calls the company BooBER based on the amount of women he can bed now, REALLY!?
Now before anyone pipes up that I am bias to the service and that this is simply sour grapes and an attempt to discredit the company let me say this. I have used the Uber service and quite frankly it bloody brilliant. Quick and easy and when I order a cab I know it is going to arrive on time and can track this. Its technology and innovation taking a step in the right direction to tidy up an industry that has been doing the same thing, and nowadays maybe not the right thing, for the last 100 years. This is a game changer, and it has to happen.
So why am I writing this. Let us call it like it is, Uber aren‘t adhering to the law and need to be accountable for their actions and need to be exposed for what they are. No matter how good the service is we cannot continue to support a company that flouts the law at its abandon to fuel its greed. I mean I‘m all for capitalism and do what you can to win but respect the laws of the countries you want to do business in, the fact that they don‘t is an insult to the people of those countries including South Africa.
So I guess I have a couple of questions, and would like to highlight information for the companies like Discovery Vitality, Investec, kalahari.com, Movember South Africa, and any other companies that Uber are teaming up with or have been associated to in South Africa. I also have questions for the South African Revenue Service (SARS), SA Reserve Bank (SARB) and Department of Transport – South Africa (NDoT) about the legality of how Uber operates in South Africa. For the Democratic Alliance in Cape Town on their dealings with Uber. And of course Uber you are also party to this so please feel free to provide comment where you deem necessary but I doubt any legitimate comment will be forthcoming.
1. South African Reserve Bank (SARB)
a. I was in a meeting with a gentleman who knows the Uber team in South Africa he said. We were having a general chat about tech, disruptive tech and of course Uber came up. What was said next floored me at the time but in light of the current behaviour by Uber it really doesn‘t surprise me anymore, we are dealing with a company that thinks it can run around breaking the law with impunity. The gentleman highlighted that Uber in South Africa are contravening South Africa‘s Foreign Exchange Regulations and that they know they are doing it. WOW!!
b. “œWhy“ was obviously my next question.
i. All transactions that are generated through the Uber application in South Africa are settled offshore was the answer.
ii. So basically all revenues generated by Uber in South African borders are being syphoned offshore immediately.
c. Ok fine, so I asked my Investec Private Banker, to please trace a transaction for me that was generated on my card through Uber and tell me the flow and detail of the transaction.
i. Feedback:
1. Transaction is settled in the Netherlands, odd how this happens to be the world‘s biggest tax haven for US multinationals doing business outside of the United States.
2. Transaction was Euro based but forced into a Rand denomination to reflect ZAR on my account, first time I knew that the transaction was Euro based, I think this contravenes some of Visa and MasterCard processing rules. @ VISA & MC your comments would be appreciated?
ii. My conclusion (and this is probably very simplified)
1. 100% of all transactions revenues generated by Uber in South Africa through after tax consumer money is settled in the Netherlands.
2. Uber earns 20% fees on the rates charged to passengers, therefore I am assuming they repatriate 80% of the above transaction revenue back into South Africa to settle their drivers.
3. The 20% fees remains in the Netherlands never to be re-churned into the South African economy again and I‘m sure there is some kind of tax avoidance, hopefully not evasion, scheme in play here so we are losing out on tax revenues.
4. It would appear we have a definite leak in our economy.
d. My question to Governor Lesetja Kganyago at the SARB is does this comply with our Exchange Control Regulations?
i. I and I am sure a couple of people reading this are going to be very interested in the response. Why? If this practice is legitimate and acceptable to SARB I think you might have a couple of companies looking to setup operations with similar operating fundamentals to keep money generated through services rendered in South Africa offshore.
ii. I also think there may be some individuals that can see through the lines and find a legitimate mechanism to get there personal funds offshore.
2. South African Revenue Services (SARS)
a. Uber according to their website and I quote “œUber is not a transportation provider.“ So we can then assume they are not providing a transport service to us the consumer they are merely connecting us to a driver, who is providing a transport service, and for this they are earning a 20% fee/commission based on the fare calculated using their App.
b. So simply put we can assume the contractual relationships are as follows:
i. Passengers are contracted to Uber as the passenger pays Uber for connecting them to an Uber contracted driver i.e. passengers pay 100% of fare calculated using Uber‘s App into Uber‘s bank account in the Netherlands and Uber then pays 80% of this fare to Uber contracted drivers in South Africa. Hard to contemplate how they are not a transport company as this model is employed in the current industry by some, they just use a call centre and not an App.
c. My questions to Mr. Tom Moyane at the SARS:
i. Is Uber charging 14% VAT on this fee/commission charge and are they paying this over to SARS?
1. This definitely does not fall into the exemption that public transport is a non VAT-able supply. They are after all by their own statement not a transport provider, they simply offer a service to driver “œtheir customer“ to generate more business. I have to charge 14% VAT to my customers who are transport operators for services rendered.
ii. What is also questionable at this stage is that the exemption applies to public transport services. In light of the lack of vehicle permits needed to operate and the fact that Uber itself calls the service it offers a private ride sharing service maybe SARS are losing out on some valuable VAT revenue on all that money being generated through their App?
d. My second question is based on the above information highlighted to SARB, is there a convoluted Tax scheme being employed by Uber to avoid paying taxation in South Africa?
i. It‘s no secret they employ avoidance strategies already
http://48hillsonline.org/2014/07/10/ubers-tax-avoidance-strategy-costs-government-millions/
ii. It would be rather concerning if we were letting this happen considering the current state of affairs in South Africa.
3. Discovery
a. My questions to Mr. Adrian Gore @ Discovery:
b. Besides the obvious questions as to your association with a company of Uber‘s delightful character and the very real possibility that they are breaking our laws.
c. I have a Life and Health policy with Discovery
i. In light of the fact that the majority of drivers/vehicles contracted to Uber don‘t have operating permits and licenses to operate (please note that they have previously claimed to have complied with these requirements, another lie dripping through the cracks)
1. Will my Life Cover still be honoured if I am killed/injured in an accident involving an unregistered driver/vehicle of Uber‘s?
2. Will my Healthcare benefits still be honoured if I am injured in an accident involving an unregistered driver/vehicle of Uber’s?
d. Further to this can you explain how Public Liability Insurance would work for Uber contracted drivers/vehicles that have an accident and do not have the correct public driving and vehicle permits?
4. National Department of Transport (NDoT) & associated local government transport departments.
a. The Minister of Transport, Honourable Dipuo Peters, please consider the following information and questions:
b. On their website Uber proclaim not to be a transport provider but it‘s amazing how they seem to be caught in the cross-hairs of every transport authority they are playing in.
i. There are city and country law makers that have already told them to register themselves as a transport operator and obtain the necessary operator licenses, they clearly don‘t buy the drivel.
ii. Other cities and countries have simply banned their operations, unbelievably in some cases Uber simply carries on operating despite the courts ban. Goes again to show the character of the company we are dealing with.
c. So what are they Ms. Minister? Because it would appear they play both sides of the coin to suit their situation but ultimately they sure do sound like a Taxi Company.
i. Alon Lits the General Manager for Uber in South Africa regularly compares Uber to and differentiates it from other taxi companies. A taxi company is a transport provider.
ii. They set and dictate the rates that are charged by their contracted drivers/owners to us the consumer. This is not negotiable when signing on to the service for both the driver/owner and consumer.
iii. They contract drivers/owners to use their application to get rides and pay the drivers/owners the money collected from the consumer. The App has simply replaced the Call Center at the end of the day.
iv. They collect all payments from the consumer into their bank account.
v. They use a smartphone App like a taximeter. It calculates the fare based on the route and distance travelled using GPS. This was actually the rationale given to me by one of the car owners contracted to Uber. The current licensed operator‘s taximeter does that by reading the distance travelled physically on the vehicle.
1. So as I see it they would need to have their “œtaximeter“ i.e. GPS Smartphone, verified, calibrated and sealed like any other metered taxi operator to be considered legal and to obtain a valid permits.
a. What is so difficult about that and why are Uber fighting complying with this regulation?
b. These measures are implemented in the current regulatory frame work to protect the consumer, the same should apply to the use of smartphones in calculating the fare. The risk for manipulation of rates and even distances travelled is just as likely and if not greater, therefore the consumer needs protection.
c. Especially against this Uber phenomenon of Surge Charging. This isn‘t allowed under the current regulatory framework. Why should Uber now be allowed to do it via their App? And I am sure they have contravened the Consumer Protection Act, I‘m sure this will come out sooner or later.
d. Uber claims to be getting issued Charter Service licenses in Johannesburg. Clearly their preferred classification due to the less onerous requirements versus the metered taxi requirements which Cape Town and Durban are saying they need to obtain.
i. This is interesting as Charter services are those where a vehicle and driver is hired for a journey at a charge arranged beforehand with the operator.
ii. Neither Uber nor the customer agree a charge beforehand with the transport operator, i.e. the driver/owner. Uber give the customer an estimate based on an estimated route and time taken to complete that route. The route is variable and can change based on the final route taken by the driver/owner, the time spent in the vehicle is also variable so if there is a delay due to traffic etc. all this will change the value of the fare. The transport operator never has site of any charge that could potentially be made from the trip and only sees the end fare.
iii. I think there may need to be a review of Ubers operating license in Johannesburg as they definitely don‘t comply to be a Charter service operator per the National Land Transport Act.
1. Per the Act it even states the following “œWhere application is made for an operating licence for vehicle hires with drivers as charter services, the entity granting the operating licence must evaluate whether the services should rather be provided as metered taxi services, and, if it grants the application for a charter service, should attach appropriate conditions.“ It would be interesting to read what if any these conditions are on current issued permits.
iv. I have spoken to a legitimate charter operator driver in Johannesburg and they quote a flat price every time a booking is made, it never changes regardless of time or distance travelled. The major concern about Uber he shared with me was how quickly their permits are being issued. The legitimate charter operator has about 20 vehicles which they replace with new vehicles quite regularly to keep their standards up and they need to wait considerable lengths of time to have these permits transferred to the new vehicle, and these are already issued permits so the process should be less onerous. Yet Uber vehicles are having their permits issued with no hassle and in a short space of time. I guess the question is, WHO is assisting them with this?
e. Mr Lits complains that other taxi companies have greater resources when it comes to applying for permits for vehicles and drivers. Shame I think I hear the world‘s smallest violin playing at the moment but Uber has just raised a staggering $1.6 Billion, that‘s about R18.5 Billion. I am very positive that there isn‘t one, let alone all taxi companies combined in South Africa that can claim to have access to that amount of money.
i. I suppose it‘s far easier to shift this responsibility to the drivers/owners to ensure these regulations are taken care of, than take responsibility and apply for them themselves. It certainly helps to save those Billions.
f. I think it‘s also interesting to note in Uber‘s terms and conditions:
i. “œThe quality of the transportation services requested through the use of the Application or the Service is entirely the responsibility of the Transportation Provider who ultimately provides such transportation services to you. Uber under no circumstance accepts liability in connection with and/or arising from the transportation services provided by the Transportation Provider or any acts, actions, behaviour, conduct, and/or negligence on the part of the Transportation Provider. Any complaints about the transportation services provided by the Transportation Provider should therefore be submitted to the Transportation Provider.“
ii. Aaaah yes the joys of not being the transport provider, no liability for anything, no accountability for anything. Uber simply makes it not their problem.
iii. We the consumer don‘t even know this “œTransport Provider“ until we have booked a car, not that it makes much difference. I guess we simply cross our fingers and hope we don‘t get the axe murderer“¦..
g. As a matter of interest here is a comparison of Uber locally and internationally to Traditional taxis in South Africa.
ii. You‘ll notice that Uber has a Charge per Minute, this is very clever marketing, because they purport to charge R7.50 p/km on UberX and R11 p/km on UberBlack, no mention that they actually charge you for every minute you spend in the car.
1. So in reality the actual charge is probably about R9.50 p/km on UberX and R13.75 p/km on UberBlack, smoke and mirrors.
2. Now traditional taxi companies also have what in the industry is referred to as time waiting and this charge starts calculating within 5 minutes once the car has completely stopped and the meter is active, this is a charge to compensate the driver for time lost while he is transporting the passenger, it stops immediately once the car starts to move again. This usually only happens in high traffic zones but is certainly not the norm especially in SA and hence why no charge in the table above.
iii. So Uber SA compared to its peers in other cities is by a long shot the smaller brother. I think we as South African‘s can count ourselves lucky that we aren‘t charged more per Kilometer. The disparity amongst the cities is interesting and can somewhat be justified due to higher operating costs, fuel etc. but still very high.
1. I do question the financial sustainability of the Uber model in SA, especially for single owner drivers, already the margins of the legitimate operators are small and they battle to survive, from above it is clear they are making less. And for what to satisfy the consumer, if we don‘t all realise that if we don‘t pay a fair wage for services rendered those service providers will not be in business and then we don‘t have a service to use.
a. In the interim the affects Uber will have in putting these operators out of business is unprecedented.
2. I don‘t think the current Uber drivers have even begun to feel the real pinch of operating costs for their vehicle, petrol is one thing but just wait for the maintenance plans to run out (and that happens quickly in the people transport business) and services kick in, wait for when the tires need replacing, and then all of a sudden the vehicle needs replacing.
3. The majority of Uber’s base being fleet owners might survive, they have the luxury of being able to operate 24/7 as they simply employ more drivers per vehicle, the single owner driver unfortunately doesn‘t have this luxury.
iv. The more interesting part here is that traditional cabs in SA are not that far off what Uber SA is charging. A minor difference in my opinion.
1. Now before all South Africans cry foul and tell me I‘m talking nonsense, the above rates are what you should expect to pay if you use a reputable taxi service. If you are getting charged more than yes you are being ripped off, I cannot argue this but there is a reason for this.
a. The problem is that the SA industry gets a bad rep at the moment because of illegal operators, and I‘m not referring to Uber here, I refer to the “œPirates“ as they are affectionately referred to by the taxi operators in the industry, those that don‘t have permits yet mask around as being legal and rip the unsuspecting customer off. That‘s not to say that some of the legal operators aren‘t pulling tricks as well.
b. And this is where the enforcers of the regulations imposed by our law makers are failing the industry and the consumer, especially in Johannesburg. Cleaning up the Pirates and clamping down on non-compliant operators would go a long way to restoring the credibility of the legitimate industry.
5. Democratic Alliance (DA)
a. Ms. Zille, please could you investigate and give comment to the following:
b. Mr Lits has stated that he has been in talks with the City of Cape Town for months over what kind of category licence Uber fits into.
i. From the information I have been told this is true and that there is a moratorium on the issuing of permits until a proper feasibility has been completed on the industry, as currently there is an oversupply of operators in the region. This goes for Durban as well. There is a rumour passing the hallways that there was a considerable seven figure sum of money paid to the DA by Uber, maybe this was meant to help lift this moratorium?
ii. I have also been told that while the local government employees support the legal taxi industry and not to issue any permits to Uber, there is considerable pressure coming from above within the City ranks for Uber to receive permits.
iii. Rumour or not, I always say where there is smoke there is probably a burning bush. And let‘s be straight here if this has happened in Cape Town it most certainly is happening in Durban and Johannesburg.
c. Can the DA either confirm or deny that they have received money from Uber?
d. If you deny this would you be willing to prove that no money has exchanged hands?
e. If you do confirm money has been exchanged. Then what is an American based company doing making donations to a South African political party?
So by now I am sure I have kicked a giant hornets‘ nest and poked the entire bear population of Alaska but this needs to be told, I hope people are listening. I am sure my Uber account will be shut down tomorrow like any other person who has spoken out against them. I just hope I don‘t have to get bodyguards like Sarah Lacy @ PandoDaily has to protect her and her family.
http://www.bloomberg.com/video/pandodaily-s-sarah-lacy-responds-to-uber-tFzq09hvSiGVd0W3LW5_Yw.html
I as do other people and businesses in this country abide by the laws and pay our taxes, why should Uber be any different? It‘s time to clip their wings and bring them down to size and force them to play by the rules as many cities and countries are doing.
I think the best option for taxi drivers and taxi operators to compete with Uber is to adopt the same or shared technologies and create a worldwide federation of taxi operators with global presence. The taxi market is too fragmented, each taxi operator is trying to develop its own technology but they will not be able to compete if they do not get economies of scale and shared/interconnected technologies.
