Ride Sharing Business
The ride-sharing business is a revolutionary transportation service that has transformed the way people commute in today’s fast-paced world. At its core, ride sharing enables travelers to effortlessly match up with independent drivers at short notice through a convenient booking process facilitated by smartphone apps. Users log into these applications, enter their location, and are presented with a list of available rideshare drivers in their vicinity, thanks to the integration of GPS and smartphone technology. This innovative approach not only makes transportation more accessible but also enhances the overall experience.
Ridesharing companies, such as Uber, Lyft, Grab, and Pathao, Tootle, InDriver in context of Nepal and others, have harnessed the power of technology to organize rides effectively through dedicated apps. The key features of this service include peer-to-peer interactions, where everyday individuals can become drivers, and travelers can become passengers. These companies typically take a commission from the fares, with the percentage varying between providers from10 to 30% of the total fare collected.
Additionally, ride-sharing companies offer various features to cater to diverse travel needs. Some provide stop services, allowing multiple destinations in a single trip. Carpooling services are also becoming popular, which allow users to share rides with one or multiple fellow passengers, reducing costs and environmental impact. Furthermore, some companies have expanded their services to include courier delivery, making them a one-stop shop for transportation and logistics solutions. Ride sharing has revolutionized urban mobility, offering convenience, cost savings, and an environmentally friendly alternative to traditional transportation methods.
Problems in Ride Sharing Business
The ride-sharing industry, while offering numerous benefits, grapples with several pressing issues. A critical problem revolves around driver classification, as debates continue over whether drivers should be considered employees or independent contractors. This classification affects various aspects, including labor rights and benefits. Furthermore, insurance concerns persist, with the need to protect both passengers and drivers in the event of accidents or mishaps. Price wars, marked by a perpetual battle to establish competitive rates, create pricing instability. The ongoing clashes with the traditional taxi and other transportation industry have further intensified the challenges, as these two transportation models collide.
While we have already discussed the employment related aspects of this economy in another post: Ecommerce Business in Nepal – Part 1 and Ecommerce Business in Nepal – Part 2, in this post we will focus more on the regulatory aspects surrounding the ride sharing economy in Nepal.
Lack of effective regulation of ride-sharing services has raised questions about oversight and safety. State enforcement remains a concern, with an urgency to establish a more equitable and effective regulatory system that can govern this evolving business landscape effectively.
The old legal regime on ride sharing - or the lack thereof
Prior to the ruling by the Patan High Court and the subsequent amendment introduced by Bagmati Pradesh (and few other provinces) in the Provincial Motor Vehicles Transport Management Act as well as its Finance Act, pertinent legal provisions pertaining to the ride-sharing business were as follows:
Section 8 of the Motor Vehicles and Transport Management Act, 2049 stipulates:
८. निजी सवारीः
(१) निजी प्रयोगको लागि दर्ताको प्रमाणपत्र प्राप्त सवारीलाई निजी सवारी भनिनेछ ।
(२) निजी सवारी यातायात सेवाको लागि प्रयोग गर्न पाइने छैन ।
(३) निजी सवारीको पहिचानको लागि सो सवारीको अगाडि तथा पछाडि अनुसूची – २ को खण्ड (ग) मा लेखिए बमोजिमको नम्बर प्लेट राख्नु पर्छ ।
Consequently, the legal framework in place disallowed the deployment of private motor vehicles for the purpose of rendering transportation services. “Transport service” is defined as the conveyance of passengers or goods from one location to another, utilizing public motor vehicles in exchange for compensation under the Act.
In essence, this legal stance conveyed a clear message: private motor vehicles were categorically ineligible for offering transportation services. The term “transport service” itself signified the conveyance of passengers or goods from one location to another, a function inherently reserved for public motor vehicles, all while considering a stipulated fare. The legal framework, as it stood, embodied a deliberate separation between private and public transportation, safeguarding public interest and safety.
Patan High Court’s Decision
We will focus on the decision made by Patan High Court in the case of उपत्यका ट्याक्सी व्यवसायी तथा चालक सेवा समाज विरुद्ध भौतिक पूर्वाधार तथा यातायात व्यवस्था विभाग, महानगरीय ट्राफिक प्रहरी महाशाखा, पठाओ नेपाल प्रा.लि., टुटल नेपाल Decision Number: 076-WO-0392 on 2076/10/29.
The contention of the appellant, which is the Taxi Driver’s Association, can be summarized as follows: The appellants, who are engaged in operating black plate taxis for public transport services in accordance with Section 6 of the Motor Vehicles and Transport Management Act, 2049, contend that Pathao and Tootle are in violation of the law by offering passenger services as a form of public transportation for hire, using private vehicles bearing license plates meant for personal use. This, they assert, represents a clear breach of Section 8 of the Act, which specifies the distinction between private and public transport. The appellants argue that such activities not only contravene the Motor Vehicles and Transport Management Act but also infringe upon the fundamental rights to property, business, and labor as enshrined in the Constitution of Nepal, 2072. Consequently, the appellant seeks a restraining order to prohibit Pathao and Tootle from continuing these operations within the city.
Basically the court disagreed with the contention of the appellant based on the following points of reasoning:
- Role as Digital Service Providers: Pathao and Tootle role is that of digital service providers. They operate a platform where users and service providers come together to mutually agree upon the services to be provided. Their primary function is to facilitate and support the digital ecosystem where service transactions occur. It is emphasized that Pathao and Tootle are primarily computer-related application operation support service providers. They do not directly provide transportation services but rather offer support services within the realm of computer operations. Their core function revolves around the operation of the application infrastructure.
- Non-Ownership of Vehicles: Pathao and Tootle do not have ownership of the vehicles used for providing transportation services. These vehicles are registered and owned by independent drivers who participate in their platform. Consequently, any potential contravention of Section 8 of the Motor Vehicles and Transport Management Act cannot be attributed to the platform providers, such as Pathao and Tootle.
- Compliance with Policy Frameworks and State Policies: Pathao and Tootle underscore their commitment to adhering to Nepal’s legal and policy frameworks, including the Information Technology Policy, 2072, and the Foreign Investment Policy, 2011, enacted by the Government of Nepal. Their operations are conducted in alignment with the legal essence and spirit of these policies. Reference is made to Article 51 of the Constitution of Nepal, which aligns with the development policies emphasizing scientific research, technology advancement, and investment in innovative activities, including mobile applications. This underscores the legal framework’s support for the growth of innovative enterprises.
- Expansion of Ride-Sharing Economy: The decision highlights the substantial growth of the ride-sharing industry in Nepal, with approximately 50,000 registered riders engaging with ride-hailing platforms, particularly services like Pathao and Tootle. Notably, Pathao Nepal has claimed to successfully onboard over 1,600 taxi drivers through their mobile app, an assertion that remains uncontested by the opposing party. The text points out the global nature of the ride-sharing industry, noting how globalization and the Internet have connected individuals worldwide. Furthermore, it highlights prominent international examples such as Uber, Lyft, Grab, Easy Taxi, Hitch-A-Ride, Carma, and BlaBlaCar. These global developments are portrayed as exemplars that should be encouraged within Nepal as well. Innovative businesses like those facilitated through mobile apps like Tutal and Pathao align with the progressive stance taken by the state.
- Consumer Rights and the Constitution: It underscores that mobile apps like Tutal and Pathao have garnered widespread public usage, empowering citizens to exercise their rights to select high-quality goods and services at competitive prices, as guaranteed by Nepal’s Constitution. This underscores the critical role of the Constitution in both declaring and ensuring the enjoyment of these fundamental rights, with the judiciary playing a vital role in upholding these principles. The decision also accentuates Nepal’s adoption of a mixed economy and economic liberalization, with a particular focus on encouraging entrepreneurship. It emphasizes that promoting entrepreneurship generates capital and employment opportunities within the country, aligning with the broader development objectives.
- Third Generation Rights and Philosophical Considerations: The concept of “Third Generation Rights” is introduced. These rights encompass the right to development, peace, a healthy environment, sharing in the exploitation of the common heritage of mankind, communication, humanitarian assistance, and the encouragement of entrepreneurship. Philosophical perspectives on ethics and consequentialism are briefly touched upon, indicating how they contribute to the flourishing of industries like Pathao and Tootle.
- Petitioner’s Argument for Injunction: The decision acknowledges the petitioner’s argument, which asserts that people voluntarily utilize mobile apps for transportation, delivering benefits to thousands daily. Furthermore, it points out that the private respondents have been operating mobile applications for more than three years, and thus, issuing an injunction would not be in the public interest, underscoring that where such services are enjoyed by the majority of population issuance of injunction orders that may block actions in the interest of the majority.
The court, in its ruling, also issued a mandamus order to the Ministry of Physical Infrastructure & Transport and the Traffic Police Office. This order instructs these authorities to proactively collaborate with relevant stakeholders to establish a comprehensive regulatory framework pertaining to innovative technologies in the realm of the ride-sharing economy, with a particular focus on development-oriented initiatives.
What’s changed since then?
Despite the prevailing Federal Law not providing for the provisions that enable the ride sharing business because of the restriction placed in Section 8 of the federal law Motor Vehicles and Transport Management Act, 2049, the provincial level laws issued by Bagmati Pradesh, Gandaki Pradesh and Sudurpaschim Pradesh in Section 13 of the respective provincial law allows for the ride sharing business.
Here is the progress made by the different provinces on drafting the Provincial Law on Motor Vehicles and Transport Management:
Koshi Pradesh: प्रदेश सवारी तथा यातायात व्यवस्था ऐन, २०७६ No Provision that allows ride sharing business
Madesh Pradesh: No Provincial Law on Motor Vehicles and Transport Management
Bagmati Pradesh: प्रदेश सवारी तथा यातायात व्यवस्था ऐन, २०७५ Section 13 allows ride sharing business
Gandaki Pradesh: प्रदेश सवारी तथा यातायात व्यवस्था ऐन, २०७६ Section 13 allows ride sharing business
Lumbini Pradesh: No Provincial Law on Motor Vehicles and Transport Management
Karnali Pradesh: No Provincial Law on Motor Vehicles and Transport Management
Sudurpaschim Pradesh: प्रदेश सवारी तथा यातायात व्यवस्था ऐन, २०७९ Section 13 allows ride sharing business
Section 13(4) of the provincial laws as aforementioned, outlines an exception regarding the usage of non-commercial vehicles for carrying passengers. The provided text in Section 13(4) presents an exception to the general rule that non-commercial vehicles should not be used for commercial transportation services. This exception applies specifically to two-wheeler and four-wheeler vehicles that have been registered for private purposes. These vehicles, while primarily intended for personal use, are allowed, under certain conditions, to carry passengers along their designated routes. To qualify for this exception, the vehicle owner or operator must adhere to prescribed procedures, which may include obtaining the necessary permits and fulfilling regulatory requirements. Additionally, they are typically required to secure passenger insurance, ensuring the safety and protection of passengers during the transportation. The exception also often stipulates that the fare charged for such passenger transportation should adhere to a prescribed, regulated rate. This exception strikes a balance between the primary private use of these vehicles and the occasional need for passenger transport allowing for the businesses of ride sharing like Tootle, Pathao and similar entities to flourish in the country.
Schedule 5 of the Constitution of Nepal, 2072, delineates the national transportation policies, including the management of railways and national highways, as a federal prerogative. Conversely, domains such as agriculture, livestock development, factories, industrialization, trade, business, and intrastate transportation fall within the purview of state-level governance. Consequently, while provincial laws at the state level, as previously mentioned, accommodate the operation of ride-sharing businesses, the extension of these regulations to encompass inter-state services encounters challenges. This is primarily because the existing federal law on Motor Vehicles and Transport Management lacks provisions that explicitly allow private vehicles to engage in providing transportation services.
Recently, Industrial Enterprise Act, 2076 – Annexure 8 has been updated to recognize Ride Sharing as a form of an enterprise – Link here.
How long can digital companies avoid accountability for their indirect economic monopolies?
The existing provisions of the Motor Vehicles and Transport Management Laws (both Federal and Provincial) highlight the stringent conditions that public transport service providers must adhere to ensure passenger safety and service quality. These provisions are essential for maintaining order and safety in the public transportation sector. However, the emergence of private ride-sharing services, which currently operate without such regulations, has raised concerns about fairness and equity among stakeholders.
Private ride-sharing services like Tootle and Pathao avoid compliance with regulations that public transport providers must adhere to under the Motor Vehicles and Transport Management Laws like obtaining the route permit, registration requirement at the transport management office, renewal of the registrations and permits. This avoidance gives the ride sharing economy an unfair competitive edge, as they can circumvent safety and service standards. The provisions of the Act also ensure passenger safety through measures like vehicle inspections, driver training, and insurances. These standards are crucial to protect passengers, which are often absent in private ride-sharing. So, regulation in private ride-sharing ensures fair competition with established public transport providers who are bound by these rules extending upto the fare setting process in the public transportation.
Private ride-sharing services might not offer the same passenger protection in cases of accidents or disputes. Regulations protect the rights of passengers and provide them with legal recourse. Regulations can also benefit drivers by ensuring fair treatment, insurance coverage, and better working conditions. Lastly, regulations provide market stability and predictability, benefiting both service providers and consumers while aligning with the overall goals for orderly transport management.
At some point in time, there might be a time to recharacterize the digital service that is being provided by the ride-sharing platform to be deemed as the “transportation service” provider.
While these platforms operate under the guise of the gig economy and independent service provider contracts, they often bypass the essential labor-related laws and regulations that protect workers in the country. This shift in perspective has significant implications for employment law and has been explored further in my previous post on the Employment and Uberization Issue. It’s crucial to recognize this evolving landscape and address the labor rights and legal considerations that may be at stake.
There is a Guideline for Ride Sharing Business - In Progress
An initiative is reportedly underway to formulate regulations for the ride-sharing industry. For more details, you can refer to the news article titled राइड सेयरिङलाई नियमनको तयारी, के हुँदैछन् कसिला व्यवस्था? on Onlinekhabar.
The proposed directive aims to regulate ride-sharing services in Nepal comprehensively. It is supposed to cover various aspects, such as vehicle registration, service provider registration, digital platform guidelines, and driver criteria, while also addressing safety, fares, and complaint management. However, it faces legal challenges in harmonizing federal and state-level regulations as the states have already started implementing their own localized procedures for the regulation of the ride sharing business, let’s take an example of Gandaki Pradesh from this link here. Despite that, this directive is a significant step towards establishing a structured framework for ride-sharing in Nepal.
Key points from the proposed ride-sharing directive in Nepal:
Vehicle Registration:
1. Motorcycles or scooters providing ride-sharing services must be registered as public vehicles.
2. Minimum engine displacement requirements for petrol and electric vehicles.
3. Odometer, safety barriers, hand grips and anti-lock braking system (ABS) or combination braking system required.
Company Registration:
1. Ride-sharing service platform providers must be registered with the Transport Office and obtain licenses.
2. Existing service providers are given a grace period to complete registration.
Online System Requirements:
1. Secure certification for digital platforms.
2. System should be in both Nepali and English.
3. Display passenger and vehicle details, contact information, and provide real-time tracking.
4. Passenger data must be stored securely and accessible upon request from authorities.
Driver and Service Criteria:
1. Service area limited to 15 km from the point of departure.
2. Drivers must hold a valid driver’s license for at least one year.
3. Compulsory reflective clothing for night rides.
4. Prohibition of offline ride services.
5. A rating system for drivers, with refresher training for low-rated drivers.
Security and Insurance:
1. Tracking and immediate notification for deviating vehicles.
2. Compulsory vehicle, driver, passenger, passenger group, and third-party insurance.
3. Only one person allowed on motorcycles or scooters; children under 10 prohibited.
4. Helmets are required for passengers.
Fare Regulation:
1. Minimum fare requirements determined by provincial or local authorities.
2. Fare surge allowed during high demand, varying based on distance, demand, and vehicle availability.
Complaint Management:
1. Service providers must offer 24-hour help and complaint centers.
2. Passengers can file complaints with the police for driver misconduct.
Lastly, ride-sharing business - explained by a Tax Accountant
In a typical ride-sharing transaction, three key parties are involved:
1. Rider: The individual operating the motor vehicle.
2. Pillion: The passenger using the ride service.
3. Platform Provider: The entity that manages the platform connecting riders and pillions.
In a ride-sharing transaction:
1. The pillion utilizes the ride service provided by the rider through the platform facilitated by the platform provider. The pillion compensates the rider for the transportation service.
2. The rider utilizes the digital platform (and sometimes collection services) provided by the platform provider. The rider compensates the platform provider for these services.
The service provided by the rider to the pillion, which is a transportation service, falls under VAT-exempted services according to Group 9 of Schedule 1 of the Value Added Tax Act, 2052. Therefore, this service is not subject to Value Added Taxes. Typically, as the service recipient is an individual obtaining it for non-business purposes, the amount paid by the pillion to the rider is not subject to any withholding taxes under Section 88(4)(Ka) of the Income Tax Act, 2058. However, if such services were obtained for business purposes, a withholding rate of 15% would apply as required by Section 88(1), although it may not be practical to administer.
On the other hand, the service provided by the platform provider to the rider is considered a digital service (or collection service if it involves collecting money on behalf of the rider) and is subject to Value Added Taxes. The platform provider is obligated to issue VAT-inclusive invoices to the rider for the services provided. Although the Income Tax Act, 2058 expects the rider to withhold taxes when settling payments with the platform provider, this practice is not commonly followed, as gig workers are typically not registered as service providers for income tax purposes.
The financial settlement between the rider and the platform provider, or vice versa, occurs once the payment has been made by the pillion. The mode of payment—either in cash to the rider or digitally to the platform provider—determines the mode of settlement of the transaction between the two parties.