Regressive Rideshare Tax?
Introduction
The obligation to contribute towards
our tax system is something most reasonable people agree as a sensible part of
running a functioning economy and cohesive society. The spread of technological
innovations raises questions about how we tax the digital rideshare economy as
more ordinary Australian people join into this collaborative peer to peer
economy. Is fairness and equity given attention in the emerging tax
arrangements?
Rideshare Tax
Obligations and Compliance Costs
In early 2017 the Australian High Court
ruled that rideshare services are subject to the 10% tax as defined under
the GST Act on basis that their operations are equivalent to
taxi services. It dismissed assertions that rideshare providers don’t use taxi
rank infrastructure or carry out spontaneous roadside pick-ups.
The High Court also rejected concerns
that Uber providers (Partners/drivers) were “unjustly
singled out…for different tax treatment than truck drivers, bike messengers,
Air bnb hosts or any other participant of the sharing economy”http://www.abc.net.au/news/2015-07-31/uber-launches-legal-challenge-to-overturn-atos-directive/6664234
A reader may be surprised though to
learn that this tax seems regressive. Under the GST Act tax is
levied on businesses with earnings over $75,000 except for the taxi industry
where GST must be paid without regard to the level of earnings – this puts
rideshare peers in precarious situation as they earn low incomes.
The public is also largely not aware
that actually individual rideshare drivers (partners) pay their normal income
tax (similar to government or private sector employees). The difference here is
that on top of their normal income tax a ride-share driver must also pay an
additional 10% as a GST levy. While some may simplistically talk of crackdown
on multinationals, the application of a GST on work performed by low income
ride-share folk has hallmarks of a regressive tax. And there is more.
Aligned with the GST law rideshare
providers are subject to extensive business administrative obligations – like
those involving the ins and outs of making BAS Statements. They may require
book-keepers at exorbitant costs relative to their low incomes; and engage
accountants to manage their tax obligations. Oops, not the realm of an informal
peer to peer exchange of services.
Rideshare partners seem to earn low
incomes especially in the face of GST levy. The operational cost alone are not
a simple matter – the essential mobile phone necessary to operate an App,
fuel and vehicle maintenance, insurance, to name some.
· There also multiple State government
compliance costs. For example in states such as WA these include those related
to gaining market entry and ongoing operational requirements:
- · Cost of government’s F extension
- · Cost of acquiring Omnibus Charter Vehicle License
- · Cost of government-approved Annual Full vehicle examination in compliance with the Omnibus Charter License
- · Police clearance (same as those required in mainstream employment and contracts
- · Medical assessment aligned with existing National Medical Standards set out in the Assessing Fitness to Drive Guidelines (including eye test, BP, sugar level and other relevant medical conditions).
If the WA government medical exam forms are
anything to go by, the medical exams that Uber Partners are subject to are
assessed under the category of commercial vehicle standards (same category used
for heavy vehicle drivers, class MR and above, F Extension holders, Tax
drivers, Dangerous goods vehicles drivers, Driving Instructors).
These factors (not exhaustive) further
affect take home earnings.
Reconsidering
Equity and Fairness in Rideshare Taxation
Obviously the High Court interpreted
the law as it stands. However, issues of fairness and equity in how
Australia structures its taxation system going forward need to be examined well
beyond the Court sphere. The federal political class cannot escape its
responsibility to monitor that this levy does not severely conflict with other
established taxation principles of fairness and equity – as this can be the case
when the GST burden is disproportionately borne by a group largely on low
income.
Fairness and equity were once upon a
time important part of principles in the structuring of Australia taxation.
Even the GST political contestations of yesteryear appear to have been
settled with some regard that the regressive nature of this tax structure was
not intended to get too far out of hand.
The establishment of a GST system went
through unprecedented examination which served to limit its regressive impacts
on low income earners – remember the debates around the earlier GST Fightback
Policy to the eventual Howard’s GST. As an instance, the thorough
discussions that ensued and settlement reached on the then food exemptions (if
not the cake) in attempt to factor in equity!
In practice the GST levy for rideshare
providers also means not much (if at all) is left to put towards superannuation
for future retirement. Where is fairness and equity in such a tax system? Why
not factor in some integrated policy thinking into this. And on the previously
raised question, what differentiates share ride drivers from truck driver
business contractors and air bnb hosts as the latter are not subject to a GST?
As technology is reshaping the economy
at unprecedented speed, political leaders need to continually examine when
graduated tax is more appropriate (i.e. income tax as currently structured) –
and when imposition of a regressive tax such as a GST can lead to unintended
consequences entrenching poverty and inequality.
It is hard to imagine how we could
start to address issues of equity (let alone inequality) if the political class
is not in touch with everyday experiences of how the rideshare economy is
experienced.
Peer rideshare providers are everyday
folk from all walks of life trying to participate in the modern digital
platforms. The shared economy has some attraction due its flexibility and ease
of market-entry. It offers chance to monetise existing assets and opportunity
for self-employment. While disrupting old forms of economy, at least it
marginally ‘democratises’ economic opportunity to participate in ‘on-demand
transport’.
As innovation on digital economies gain
momentum the political class can take opportunity to look at rideshare taxation
not as stand-alone item, but at least examine this as part of integrated
economic policy.
Opportunity to address equity concerns
relies on our preparedness to grasp that issues of poverty and inequality are
not separate from everyday business and work experiences. This area can benefit
if the political class make effort to gain understanding of lived and material
experiences of those that operate in the shared economy sphere. While we can
learn from the past, the present digital set up and economic dynamics are very
different from how old forms of economy are/were organised.
The political elite tend to agree about
the importance of technology and innovation in driving economic wellbeing, but
it remains to be seen how future tax structures interact with the digital
economy and pays attention equity and fairness and fairness characteristic of
some of the existing principles that has underpinned Australia taxation system.
And needless to say the writer supports
the continuation of tax on rideshare services – but the point made in this
article is that ‘what sort of tax’ should be levied?
It seems odd for example that a ridershare
provider on gross $40,000 is charged a GST plus income tax while another person
could be earning three or ten-times as much, and not be subject to a GST because
the latter is classified as an ‘employee’. And all the time ignoring that
the low income earner here is not even left with disposable income to put into
a super fund!
I am not suggesting employees be
charged a GST on their income. I am simply pointing out the inequity in the
structural application of the GST tax design on rideshare providers. At the
very least instead of redistributing wealth from these low income folk to the
top, the tax design could be structured to ensure in place of this levy, that
shareride providers put this money towards their superannuation.
For now though it seems the political
class is yet to genuinely engage in in-depth analysis on workings of rideshare
economy and the need for fairness and equity (let alone equality) in levying
GST from providers. In my view, such consideration is not about special
treatment for rideshare providers – it is about treating this group as would you
treat the rest of Australia’s income earners.
In an era of the digital economy
disrupting old models and at a time when governments wants to be seen to be
cracking down on multinationals, the under-employed and the precariously
employed that are monetising their assets are unintentionally or otherwise
caught in the crossfire. How future politics is affected by this growing class
of self-employed contractors remains to be seen.
*The author maintains interest in the
modern shared economy
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