Uber faces the axe in India

Despite a promising start, India's radio cabs have rallied against Uber and convinced the country's central bank to put it on notice. Now, the tax authorities are questioning it. If Uber doesn't tweak its business model by the end of the month, it could be curtains for this ride-share service.
Written by Rajiv Rao, Contributing Writer

By the end of October, Uber faces almost certain shutdown if it doesn't alter the way it does business in India. If it in fact does cease to exist, it will raise questions about whether India is in fact ready for new and innovative businesses that are the face of the digital future. It will also question whether Uber is capable of adjusting its model so it can smoothly cruise into new markets without attracting the kind of flak that it has.

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Image: Uber

First off, for those who don't know it, Uber is a revolutionary ride-share service (not a taxi cab one) already present in hundreds of cities worldwide that is changing the way we look at a commute, and even transportation in general. With the use of a smartphone app and GPS system, Uber connects passengers with taxi drivers, allowing for location sharing on both ends. The customer's credit card information is stored online so all he or she has to do is go the ride while the credit card is billed automatically. No cash, no receipts, and no time spent in thinking about any of this. Enter and exit as if it were your own chauffeur-driven car.

But India isn't so happy with this nifty service. For one, the Reserve Bank of India (RBI, the country's central bank) insists on a two-step authentication process for anyone using a credit card, with the second step usually a one-time pin that is SMSed to your phone. An internet-based business, Uber manages to sidestep this second step. Transactions, in dollars, are routed to a Netherlands-based payment gateway — a savvy approach, since payments involving foreign exchange outflow is exempt from the authentication requirement. (Uber basically receives payment via an Indian customer, sends it to the US through its Netherlands gateway, and then directs it back to the driver in India.)

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But there's a catch. Two Indian citizens cannot conduct transactions in foreign currency, unless one holds an RBI-issued forex brokerage licence. Otherwise, it would be in contravention of FEMA, the country's foreign exchange laws (which, it should be noted, India has relaxed significantly from the days of exchange controls in the '70s and '80s, making life far easier for the overseas-travelling Indian).

Foreign exchange controls are present for good reason in India, which has a notoriously hoary and pernicious problem with tax evasion. Yet, some Indians think that India urgently needs to make special accommodations to new economy companies like Uber, such as waiving the credit card authentication requirement if it has hopes of playing in the brave new digital future of cashless economies and online ecosystems. For a country that crows about using technology to make lives more productive and easier, this is certainly not the way to do it, they argue.

More recently, Uber has landed itself deeper in the Indian regulations mire by attracting the ire of the country's tax authorities who have begun questioning how the company has managed to evade the 4.9 percent tax levied on all taxi services, plus the 12 percent service tax on payments made to its Netherlands unit.

Yet, all this tumult is not so much about the impingement on personal freedoms or the digital future of the country than it is it is about the immense cost savings that the service could usher. According to this article, you could slice at least 50 percent of your cab fare by using a ride-share service with base costs, as well as per kilometre charges being half as much as regular taxi services. And although this piece refers to Toronto, Canada, the same economics generally apply to the rest of the world.

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So, it is no wonder that the promise of a gigantic cost savings through ride-share services — and therefore an accompanying gaping hole in the pockets of taxi operators in pretty much every part of the world — have motivated these taxi operators, and municipal authorities (who make a ton of money awarding them licences), to protest vehemently at this potential revolution in public transportation. Major cities in Europe and the US — specifically city governments and taxi unions — have been up in arms at the service, and are employing any means possible to shut down Uber and its ilk (Lyft, Sidecar). A German court recently banned Uber from operating anywhere in the country, but two weeks later lifted the injunction.

Paris cabbies are asking for an immediate shutdown of Uber, because they say that they fork out 20 percent more in taxes than Uber chauffeurs, plus an additional 10 percent value-added tax (VAT) that Uber cars don't pay. London's taxi drivers tried to convince regulators that Uber's app is a de-facto meter, which goes against the rule that only the city's black cabs can provide metered fare, but the city's regulators turned the argument down.

Recently, none other than the cradle of technology, San Francisco, along with its sister Californian city Los Angeles, tried one more trick to coral ride-share companies when the District Attorneys issued a letter to Uber, Lyft, and Sidecar, telling them that they can't allow their passengers to share rides with other people in order to reduce their fares further. The Das offices say that apparently, this is a violation of a rule that prevents transportation providers from billing multiple people for the same ride. From the West Coast of the US to the East, from the Midwest to the South, and from Europe to Asia, similar injunctions and protests are spreading against ride sharing.

Simply put, ride-share services terrify the establishment. So, it's of little surprise to learn that the real reason the Reserve Bank of India has acted the way it has in India is because Indian radio taxi providers, including Meru Cab, Easy Cabs, and Mega Cab, registered a complaint regarding Uber's usage of the Netherlands payment gateway.

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Are there any legitimate concerns regarding a service like Uber's? The spectre of safety is often touted — that ride-share companies don't do a good enough job of screening their drivers, and that at the end of the day, the issue of liability for a customer's safety is ambiguous at best.

There is definitely some merit to this argument: In June, an Uber driver in San Francisco was charged with two counts of battery for assaulting a passenger. And here's an account from The New Yorker's investigations into the service: "Over eight or so rides, I learned that the training for Austin UberX drivers, who were recruited through a Craigslist ad, consisted of a 45-minute orientation following a background check, though '20 minutes of it was just filling out forms', one driver told me. Another driver admitted, as she nearly ran into a group of people in a crosswalk, that she had only attended 'like five minutes' of the training. Most of the orientation was about how to use the Uber system and 'what not to do', according to one driver — the biggest thing not to do was accept gratuity, since it would jeopardise the legality of the enterprise."

Of course, one would have to figure out what the accident rates are like for city-mandated, yellow-cab drivers to evaluate whether the two are comparable. And if much of your taxi experiences involve either hair-raising rides that Lewis Hamilton would be proud of as well as being the hapless audience member of your cabbie's constant chatter via radio or cell phone to a cousin driving another cab, well then it can't be that much worse than these listed above.

Perhaps a hybrid system could emerge where Uber gets into a partnership with local governments on the safety and screening front. But while safety concerns are legitimate — for instance, I'm not sure that I, as a brown man, would use Uber when I'm in the middle of Texas unless I'm looking for a little excitement — I can't see how Uber functions all that differently from a service like Craigslist, which also posts ride shares. In fact, ride shares are amongst the more ho-hum services compared to everything else that's shared, bartered, or bought and sold on Craigslist. Or, for that matter, on Airbnb or any other service in the rapidly emerging, red-hot economy of "sharing". Even Facebook doesn't come without its fair share of stalkers and other humans of bent mind and ill intent.

So, instead of banning a service that can ease congestion and carbon emissions in a day and age where you sorely need to, it is time that cities and countries architect a solution to give a potentially revolutionary business models a glimmer of a chance at succeeding. And Uber and its ilk should perhaps address some of the more serious issues it can face regarding driver validation, not to mention taking a country's rules and regulations somewhat seriously and devising a solution to operate within its bounds or face an ignominious and abrupt end.

Obduracy on both fronts will only harden stances and deep-six a promising business idea.

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