Leading ride-hailing company, Uber has announced that it will be dumping its commission-based model in India. The global mobility app announced this in a blog post. Per the new system, instead of drivers paying a commission per trip, they will be required instead to pay either a weekly, monthly or even yearly subscription fee.
This fixed subscription fee model will also grant the driver unfettered access to the app. This also means drivers will be responsible for their fares and payments. Uber also said payment has to be in cash
According to it, the company will be switching to a Software-as-a-Service (SaaS) model essentially making it a subscription-based service. The rollout of this model, which affects only its rickshaw section (Uber Auto), has already begun by February 18.
Key highlights of the new SaaS approach:
- Uber will connect you with nearby drivers, but the service itself is independent of it.
- No digital payments – riders must pay the driver directly in cash or via UPI.
- Uber credits and promotions cannot be used for auto trips. Ensure Uber credits are turned off before booking.
- No trip-level commission is charged to drivers — Uber only provides the platform.
- Uber does not levy any cancellation charges.
- Uber suggests a fare, but the final amount is decided by the driver and user.
- Uber is not involved in fare-related disputes between riders and drivers but it will take care of safety concerns.
- Drivers operate independently and Uber’s role is limited to connecting riders with drivers.
Uber described it as an industry switch and said it would enable them to compete effectively.
“Given the industry’s shift towards a subscription-based model for drivers, we have decided to align our approach accordingly so as not to be at a competitive disadvantage,” an Uber spokesperson said.
This is imperative as competing ride-hailing platforms have already switched to the subscription model.
Uber could introduce a similar model to Nigeria
Uber’s switch to a subscription model is driven chiefly by purely business and tax remittance purposes. From a business angle, the company- like other similar apps- have struggled with their tax remittances.
In India for example, last year, the Authority for Advance Rulings (AAR) ruled that another app, Namma Yatri is not liable to pay taxes. Per the ruling, merely connecting drivers with riders via a digital platform did not constitute a taxable service. By dumping its commission model, Uber is also exempting itself from paying arbitrary taxes, at least on the rickshaw vertical. This means taxes will be based on fees and subscriptions.
Taxation is a nightmare not just in India but globally especially in emerging countries like Nigeria. As pointed out by Nigerian tax and business regulatory expert, Peter Nwofia, Uber and other E-hailing apps have been misunderstood by the tax and regulatory authorities of various countries.
He explained that this is particularly true for Uber which has been investigated by numerous tax tribunals: “I guess this new model gives a lot more clarity to both parties. Not exactly what would have been the best option for it, but then, something has to give,” he said.
Asked what he thought about the legal protection for e-hailing companies in India and the chance of replicating in Nigeria, Peter, who is a partner, said that he agreed with the rulings of the Indian court as the term “taxable service” has several technical implications.
“Being ‘A TAXABLE SERVICE’ has more technical tax implications, and this has been what Uber and the rest have been struggling to explain during the old model. In Nigeria, it will only be fair and transparent for the tax system to give similar treatment and not impose other unnecessary external technical tax burdens on them,” Peter said.
He said for Nigeria, the low-hanging fruit is that Uber will pay taxes based on the subscription received, but whether the tax system does the fair and right thing as India has done, is another story.
Nigeria is a peculiar market which has forced players to play creatively. For example, the country operates an unspoken sachet economy where, due to harsh economic realities, it is easier for people to pay for things piecemeal.
Hence, e-hailing companies will also have to deal with the (in)ability or (un)willingness of drivers to pay a bulk subscription fee be it monthly or even weekly. Thus, drivers are likely to prefer smaller fees over a period. Perhaps the minimum timeframe for subscription payable for Nigeria would be a daily subscription.
Peter agrees with that difficult business reality, pointing out that the subscription model is not the best business model for Uber.
“But they have been litigated severally in different tax jurisdictions. This may have influenced why they went for this model. It will even be more difficult for them in Nigeria especially as the other competitors haven’t yet changed their models. I would love to see how they keep their grip here. Doing business in Nigeria is difficult,” he finished.
Incidentally, depending on what the subscription fees would look like, the model might yet be a success in Nigeria. This is because drivers have severally called for business independence where they get to set their charges, receive payment and pay e-hailing companies a small fee for their aggregation services.
A chieftain of Nigeria’s e-hailing union, Comrade Steven Iwindoye described e-hailing commissions in Nigeria as a humongous and unfair reward for the service that they offer.
He also maintained that the drivers who are the backbone of the industry are getting the short end of the stick.
“We are the owners of the business. We are the ones going through a lot of difficulties on the road. The cars belong to us. We are the ones maintaining and taking care of the car. We are the ones fueling the cars. What are they doing for us? They only connect and link us to riders and they are still taking humongous commissions which leave us with nothing to go home in the evenings. Many of our members sleep on the road because they cannot go home. When you work from morning till evening, nothing is left with you, how do you want to go back home to go and meet your family?” he concluded.
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