The imposition of ban and pending inquiry on the operations of Uber and Careem has put question marks on the strategic decision-making of Punjab government. It depicts utter irresponsibility, incompetence and lack of strategic nous within its bureaucratic setup. The rationale behind this illogical decision can be exposed through the official documents released by the Punjab government. Allegations pitted against Uber and Careem included: use of un-registered vehicles for commercial purposes, employment of drivers without security authorization, no fitness certificates for vehicles and offering transport services without registration with regulatory body. Other than the compliance with the relevant tax regulations, the rest of the points raised are mindboggling.
One must note that Uber and Careem were operating with the consent of the Punjab government. Careem had been in operations since October 2015, and Uber started its services in October 2016. The key question is that why were the government institutions so slow that it took them more than a year to notice that Careem is working ‘illegally’ and its vehicles are without registration with the regulatory body. Punjab Information Technology Board (PITB) had signed an MoU with Uber to promote the use of technology across Lahore. Did they not know, what their business model was and how it would generate revenues for the government?
Such start-ups carry a unique opportunity for three types of Pakistanis: local entrepreneurs, part-time vendors (professionals who drive taxi for some extra money) and drivers (mostly unemployed and less educated).
Careem’s business model allows the investors to generate bulk of the revenue out of its investment as compared to the company itself. The current model at the beginning of these services favors the owners and drivers as they have better prospects of increasing their return manifold. Besides, it allowed investors to use their funds in new ventures instead of investing more typically in property or savings, which does not create jobs or more employment opportunities for less educated and unemployed.
I had a constructive interaction with some of the drivers in Islamabad. One of them from KP told me that he was working in a call center for Rs 25,000 a month, prior to taking up a job as a Careem driver. He was over the moon as he earned a maximum of Rs 40,000 a month working for Careem. Even though the average pay for drivers is Rs 20,000 a month, there is an incentive attached with high performance. Potential to earn maximum exists if a driver is able to complete two cycles of 14 days a month. If he manages to earn more than Rs 3,000 for 14 days he could earn more than Rs 40,000, for which he would get a Rs 10,000 incentive and upon completion of two such cycles, he would end up with Rs 20,000 incentive on top of his regular fixed salary. Careem will earn a 20% of earnings beyond Rs 3,200 a day. In case a driver manages to have 10 rides in a shift of 10-hours and if they still end up earning less than Rs 3,200, Careem will pay the difference to ensure threshold level is maintained.
There is a percentage of income which the company keeps out of the daily earnings of the driver. This could clearly indicate how much of the revenue goes to any car owner in a month. All the record is kept by Careem. This could certainly allow the government to tax them based on their earnings per month.
Another taxi driver I met was an owner who worked as a part-time driver and had invested more than Rs 10 million in 10 vehicles. This case highlights the loss endured by government as the investor was surely making bulk of the revenue without paying any direct taxes to the government.
Most of the money in Careem’s business model is kept by the owner (vendor) in this case, who is no monopolist or hoarder. If they consume this additional income or even save it, will it boost our economy or not? Increase in disposable income will certainly increase consumption resulting in surge in government revenues indirectly. Such startups with self-sustainable model work for the economy and can be a source of future growth for developing countries like Pakistan.
The counter argument given in favor of the government is that it was the unwillingness of the companies in question, to pay taxes as they were at continuous war with Punjab Revenue Authority since their launch. It suggests that promotion of technology was given preference to generation of tax revenue, as PITB signed the MoU to create opportunities for local entrepreneurs. If they were planning to dodge the tax authorities or were tricking the government, and no formulation of their taxation was sorted out at the start, then it raises serious questions about the effectiveness of government institutions dealing with the matter. It was the government’s fault to begin with! Why did they allow these companies to operate without formally negotiating the tax treatment of these entities?
The ongoing negotiation on taxation must be dealt carefully. I would suggest that either least tax be imposed or tax holidays be granted until the companies mature.
Not allowing the startup to flourish is an economic suicide and in contrast to what Western economies do. Pakistan is yet to formulate laws and regulations for shared economy and the Punjab government’s struggle to tax the services and ensure certification of vehicles questions the government methods and its strategic knowhow.