The Kenyan government wants to cap the commission taxi drivers pay Uber, Bolt and other ride hailing companies to a maximum of 18%. In other words, for being in Uber and co’s networks, drivers permit these aggregators to keep a certain percentage of whatever they earn for serving customers.
“Uber charges a 25 percent commission per ride, which it says covers promotional price cuts to attract riders, operating costs, health insurance on the trip for the driver and the passenger, and support of safety button technology for passengers and drivers in jeopardy. Bolt and Little charge 20 percent and 15 percent respectively” – BD Kenya
That Little is a local Kenyan company. It does 15% which means it has room for the 18% cap. As expected, it supports this new regulation. Uber is not happy and is going to Court.
Registration for Tekedia Mini-MBA edition 9 (Sep 12 – Dec 3 2022) is ongoing. Register here. Cost is N60,000 or $140 for the 12-week program. Beat early bird for free books and other bonuses.
The key issue here is the business model: when Uber gives coupons to attract riders, it never comes out of the pockets of Uber. Rather, it comes from drivers since Uber charges higher commissions to make up for those giveaways. But Little rarely offers giveaways.
This is where running a native business model provides positioning. In America, the best time to buy shirts is last week of any quarter as that is the time most stores mark down items to beat same-store numbers. They can lose $1 million but save $500 million in market cap by keeping Wall Street happy. Uber does that, but Kenya is not buying it.
Uber needs volume on rides, etc even if it makes no profit as most times, investors check mainly those metrics. That outcome is influencing what it is doing in Kenya. Otherwise, it can freeze giveaways and take lesser commissions if giveaways are the reasons the commission is high.
Comment: Well some may say that what the government is proposing is fair but I don’t buy it. Uber was first to enter most markets, having options gives you choice. If the drivers under Uber wants to migrate to other car hailing service companies they can do that without government intervention. Putting a cap is unfair. Government should focus on ensuring free entry free exit to any sector but forcing everyone to use the same business model is going too far. If you want to win a commercial contest do your homework, stop looking for regulatory advantage it is just not fair.
My Response: I did not write it there but if you ask the Accountant General of Kenya, he will explain. This move is partly tax positioning. The percentage Uber keeps as revenue is globally taxed by US laws since Uber Kenya pays technology license to Uber US. That 25% may yield nothing for Kenya. after all the “engineering”. However, the local drivers’ 75% are under local tax. When you move the percentages, you keep more money in the local Treasury.
If Uber agrees to commit a certain percentage as tax to Kenya, I promise you that the cap will go. And the irony is possibly that Little which keeps just 15% may pay more local corporate tax than Uber which keeps 25% per equivalent ride.
Comment 1b: Uber Kenya will pay company tax to Kenya, what will be taxed globally in US is it’s global profit after tax from it’s various operations. If you think of it, all things being equal 25% will lead to a higher profit hence higher tax revenue. Uber’s global profitability hasn’t been impressive, I guess that’s why they won’t find this funny. As for paying technology license to US, Kenya can actually give it a number of years within which it should have a local alternative. My point remains that different companies have different comparative advantage. I am not a fan of government “one size fits all”. The driver’s under Uber can move as I have stated earlier. Putting a cap on commission looks like what a sector’s union should be arguing for not government mandating companies.
My Response: ” If you think of it, all things being equal 25% will lead to a higher profit hence higher tax revenue.” – Uber Kenya has to pay IP license to Uber Global. Out of that 25%, it may be paying close to 20% to Uber Global on IP licensing, leaving just 5% to be taxed, after profit in Kenya. But Little will be taxed on the profit of that 15%.
In Nigeria, NOTAP manages that and it is crazy – do not think because say Google Nigeria makes $2m in Nigeria that you would tax that $2m when the technology which powers making that $2m is hosted and created in California. Out of that $2m, an IP licensing is taken care, leaving about say $200k to be taxed locally after typical expenses. This is partly the reason why many Nigerian startups move their IPs to Delaware (USA). IP is wealth!
1. Advance your career, run your business better with Tekedia Mini-MBA (Sep 12 – Dec 3, 2022): cost is N60,000 naira ($140). Click and register here.
2. Click and register for Tekedia Startup Masterclass and master business secrets from start-up to unicorn. Cost is N180,000 naira ($400).
3. Click to join Tekedia Capital Syndicate and own a piece of Africa’s finest startups with a minimum of $10,000 investment.
Ndubuisi Ekekwe, PhD, Chairman of FASMICRO Group, is the Lead Faculty in Tekedia Mini-MBA. He writes regularly in the Harvard Business Review. Email: [email protected]
Little is supporting the move, and Uber is not happy. Is it not in the same market both will operate and compete in? Whatever that is giving Little morale to support the move, Uber should learn that quickly and align. The breakfast will go round at the end of the day.
Uber will definitely try to fight this in court. If this soup is cooked in Kenya, it may be adopted by other African countries, and then Uber’s balance sheets will start changing.
They have no option. The question is what the Court will do. I think the government is not fighting for the drivers but its Treasury (tax). If Uber commits to a standard tax per ride, this will disappear. Expect ruling like this going forward due to shifting of global IPs in tech where the tech is in a server in California and users are in Kenya, Nigeria, etc.
Subscribe to our newsletter to receive breaking news by email.
Term & Privacy