Uber has taken a heavy blow in Australia and as a result, its fare prices could see a significant increase.
It's no big secret that Uber is not a traditional employer, as it classifies its drivers as individual contractors rather than actual employees. For that reason, most jurisdictions don't treat Uber as a taxi service when it comes to tax purposes.
Uber Is A Taxi Service And Drivers Should Pay GST
More specifically, this ruling means that Uber drivers in Australia will have to pay a 10 percent goods and services tax (GST) on trips, on top of the commission they already pay Uber.
Uber has been trying to fight this since 2015, when the Australian Taxation Office first required the company's drivers to pay GST. That decision placed Uber drivers on par with taxi drivers and classified Uber as a taxi service. Uber appealed the decision and argued that its drivers don't wear uniforms, don't pick up random passengers from the street and don't have cab stands, therefore they should not be classified as taxi drivers.
The Tax Office said the "taxi" term encompassed all vehicles for hire transporting passengers from one place to another in exchange for a fare, not just the yellow-painted vehicles with taxi meters.
The Australian Federal Court has now sided against Uber as well and ruled that Uber is indeed operating as a taxi service, and its drivers act as taxi drivers. Simply put, Uber is now back to square one.
"Uber had fought an 18-month battle to avoid GST, but will now need to work out how to apply the ruling to its 50,000-plus partner-drivers," The Sydney Morning Herald points out.
While bad news for Uber and its drivers, the Australian court's decision marks a big win for the government.
Uber And GST: A Matter Of Threshold, But Not For Taxis
The GST requirements also involve a certain threshold. Companies with an annual turnover of less than $75,000 don't have to register to pay GST, and Uber argues that most drivers' annual earnings are below $20,000.
At the same time, taxi services make up an exception from this rule. Regardless of how much they earn in a year, taxi drivers have to pay GST. Classifying Uber drivers as taxi drivers means they're no longer exempt from the tax. Being classified as individual contractors already meant that Uber drivers had to handle their own taxes, and the extra GST costs fall on their shoulders as well.
The taxi industry, meanwhile, welcomes the ruling, especially since it's been losing ground to Uber and other similar services.
"UberX drivers cannot expect to be treated as though they operate in a tax-free zone," said Blair Davies, the head of the Australian Taxi Industry Association. They should pay tax just like their taxi driver counterparts."
It remains to be seen whether Uber will challenge this decision, but a company spokesperson said it will offer more information to drivers as soon as possible.
Uber Fare Price Increase In Tow?
With this new ruling that forces Uber drivers in Australia to register and pay GST on top of what they pay Uber, there's a good chance that fare prices will see a significant increase to offset the additional costs. Uber has yet to make a statement in this regard, but we'll keep you up to date as soon as it does.