Private-hire vehicles and taxi drivers will be going through tougher times in 2023.
Here’s why, and whether other ride-hailing services are planning to raise commission too.
Passengers Unaffected While Drivers Bear The Cost
Grab currently takes a 20% commission from PHV drivers. They take a 3% commission for fares below $11, and 12% for fares above $11, from taxi drivers that use their service.
In an announcement to drivers on 19 December, Grab revealed that they would raise the commission rate due to the GST hike. PHV drivers will pay 20.18% of the fare, while taxi drivers will pay either 3.02% or 12.1%.
The additional commission will all go to the Inland Revenue Authority of Singapore as part of GST. This will be implemented on 1 January 2023.
This means that we, as passengers, won’t need to pay extra to cover the rise in GST. Grab also won’t need to fork out more money to cover the rise in GST.
Instead, the cost is passed down to the drivers, who will earn less.
Other Platforms Absorbing The Cost
Other companies like Gojek and Ryde aren’t planning to increase commission and will be absorbing any rise in costs from the GST hike.
TADA, which doesn’t charge a commission, said they’d temporarily absorb the fee increase for six months before reviewing their policy again. For TADA, GST is applied on its platform and cancellation fees.
ComfortDelGro also said it wouldn’t change its commission fees for PHV drivers under its ComfortRide service. They’d even extend their daily rental waiver of 15% for taxi drivers till the end of March 2023 to help them cope with rising costs.
Why Won’t Grab Absorb The Cost?
Given how other ride-hailing platforms and taxi companies absorb the cost for their drivers, why wouldn’t Grab do the same? In fact, why are they even applying GST on driver’s commissions?
A simple, yet confusing answer: because the drivers are the company’s customers, not the consumers.
Grab sees itself as the middleman between drivers and riders, so drivers pay for the ride-matching service. The riders are not considered Grab’s true consumers.
Previously, I thought that the drivers acted like contractors, helping Grab to serve their customers, which are the riders. Turns out Grab thinks that the drivers are the ones buying their service, not us.
Thus, Grab applies GST on the commission drivers pay, instead of the ride fares consumers pay. Since the current 7% GST is already included in the 20% commission, the rise in commission is really just to cover that 1% rise in GST.
Well, even if Grab doesn’t want to absorb the rise in GST, they can pass the cost on to passengers, right?
Yes, but that may lead to passengers complaining about high fares and fewer people booking rides. That would also be bad for the drivers.
But Grab isn’t a heartless villain, as they will introduce a six-month GST rebate scheme to help drivers cover the cost of the GST hike.
But there’s a catch: this will only apply to drivers who complete at least 200 rides on Grab monthly.
The GST-Registered Dilemma
The National Taxi Association and National Private Hire Vehicles Association stated early this month that drivers shouldn’t fully pay for the GST hike, since they’re not GST-registered but are also unable to adjust fares.
Wait, what is GST-registered?
Basically, since PHV drivers themselves are not GST-registered, the fares collected by them are not subject to GST.
However, because the platforms like Grab are GST-registered businesses, GST can be applied to the commission charged by these platforms.
There isn’t really a law that tells us who must bear the GST amount, so it is up to the platforms to decide whether they want to fully absorb it, or fully/partially pass it on to either riders or drivers.
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