Uber’s ongoing campaign to distinguish itself from the Australian taxi industry has brought it before the Court once again. In a Federal Court decision handed down on 17 February 2017, Justice Griffiths found that Uber drivers were supplying ‘taxi services’ to passengers within the meaning of s 144-5(1) of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (the GST Act).
This judgment brings an end to the ridesharing company’s battle with the Australian Tax Office (ATO) over GST. In May 2015, the ATO released general advice to people providing services through the ‘sharing economy’. This stated that only people who generated $75,000 or more in annual turnover were required to register to charge the 10% GST. However, the ATO determined that ridesharing services such as Uber provided ‘taxi travel’; consequently, Uber drivers were required to register regardless of turnover, and immediately charge 10% GST. Uber issued a statement in response, outlining their disappointment with the ATO’s ‘flawed interpretation of a law that was introduced in the 1990s upon participants of a new business model that is only one year old’, and launched legal action against the ATO on the eve of the 2015 GST deadline.
The question put to the Court was a matter of statutory interpretation: does the service provided by Uber drivers amount to ‘transporting passengers, by taxi or limousine, for fares’?
Uber B.V v Commissioner of Taxation  FCA 110
Under the GST Act, enterprises with annual turnover of $75,000 or less do not have to register for GST purposes. The exception to this rule is found in s 144-5(1), which states that an entity is required to be registered if the entity supplies ‘taxi travel’. ‘Taxi travel’ is then defined in s195-1 of the GST Act as ‘travel that involves transporting passengers, by taxi or limousine, for fares’ (the GST Act fails to define ‘taxi’ and ‘limousine’). As such, if Uber drivers supply ‘taxi travel’ to passengers (as characterised in s195-1), they will be required to register for GST purposes even for turnover below the $75,000 threshold.
What is a limousine?
Uber argued that ‘limousine’ should be considered in light of its ordinary meaning which Uber said was:
- a large, luxury hire car or special occasion vehicle
- a vehicle which generally charges more for a ride than an Uber vehicle
- a vehicle which is booked well in advance of its use.
In contrast, Counsel for the ATO submitted a ‘limousine’ was a synonym for hire car and it applied to all vehicles, which provide point to point transport for a fare that is determined otherwise than by a taximeter.
Griffiths J accepted features from both parties definitions. He concluded Parliament had intended to differentiate between ‘limousine’ and ‘taxi’, but that this difference did not stem from any operational features – rather the fundamental difference between the two is that a limousine is invariably a luxury car, often large, which is available to hire for transport.
What is a taxi?
The term ‘taxi’ was considered by both parties at great length, and from a variety of statutory interpretation perspectives.
Uber submitted it was not the Parliament’s intention for the term ‘taxi’ to apply as a catch-all phrase describing all point to point transport for a fare. Instead, Uber submitted that the term ‘taxi’ should be defined by reference to the regulatory context underpinning the taxi industry. They argued that badges, uniform colours, rooftop lights, taximeters, and the ability to access rank and hail markets etc. are all characteristics which dictate how taxis operate day to day, therefore go to the understanding of ‘taxi’. Uber said these specific operational features distinguished taxis from Uber vehicles, which are privately owned vehicles and bear none of the operational features required of taxis.
Commissioner of Taxation’s submissions
Counsel for the ATO submitted that the regulatory context should not be relevant to the definition because taxi regulation differed across states, for instance, taximeters are not required in Western Australia. The Commissioner argued that Parliament could not have intended for the Court to analyse the operation of the taxi industry, including regulatory intervention, to determine the ‘ordinary’ meaning of a term.
The ATO submitted that ordinary principles of statutory construction should be applied to the term ‘taxi’, namely that words be given their natural and ordinary meaning. Using this approach, the ATO submitted that a ‘taxi’ was simply a vehicle for hire by the public which transports a passenger at their direction for a fare, which may be calculated by a taximeter.
Griffiths J ultimately agreed with the ATO, determining that the ordinary meaning of the word ‘taxi’ best captures the intention of the Parliament. His Honour specified the broad approach was appropriate based on the policy and surrounding legislative context of the provision, and also its characterisation as a ‘practical business tax’. Further, his Honour indicated the differences between Uber vehicles and taxis ‘at the level of granularity’ submitted by Uber were not relevant. Justice Griffiths found that the common understanding of ‘taxi’ was ‘at a higher level of generality’ than the regulatory concept of ‘taxi’ would allow. Moreover, the ‘operational features’ of taxis only address regulations which are far removed from the practical objectives of the GST Act. Griffiths J therefore ordered that Uber’s originating application be dismissed.
What is the impact of this decision?
Griffiths J’s finding means all Uber drivers are required to register for GST purposes, regardless of the income generated from their driving. However, it also raises more questions about the role of regulation – and tax – in the new ‘sharing economy’. David Rohrsheim, General Manager Uber in Australia and New Zealand, has long advocated for regulation suitable for the digital age, stating the current clunky and inefficient systems deter entities from providing new services and creating employment. It would be more sensible, in Rohrsheim’s opinion, to negotiate regulation and tax directly with the entity involved.
The decision also has implications on the price of Uber fares, and therefore how competitive taxis will be going forward. A report by Deloitte from early 2016 found that Uber rides booking regular Uber vehicles were approximately 20% cheaper than the same trip was in a taxi. By enforcing the GST registration requirement, Justice Griffith’s decision will effectively halve Uber’s lead, instantly making taxis a more competitive alternative.
Moreover, in December 2016 Graham Cooke (Insights Manager at the comparison website finder.com.au) compared Uber and taxis to determine which was more cost effective for weekday, daytime trips, factoring in Uber’s ‘surge’ pricing. Surge pricing is an incentive built in to the Uber platform, in which the price per trip is elevated in response to high demand. In times of surge pricing, the higher potential fares encourage drivers who are in quieter areas (or not yet on the road) to meet the spike in demand, and the fare price returns to its normal level. In comparing this ‘surge’ price with standard taxi fares, Cooke found that in Melbourne a taxi trip is generally more expensive than the same Uber trip, unless there is a ‘1.39x surge’ (1.39 times the normal Uber fare) operating on the Uber platform. Similarly in Sydney Uber is the cheaper option, until the surge price reaches 1.30x (or 1.30 times the usual Uber fare).
It is possible that the requirement to register for GST irrespective of earnings, and the administrative burden this entails, may deter more casual Uber drivers from continuing to provide Uber services. This could have ramifications for the ridesharing service’s ability to respond to increased demand, meaning the increased likelihood of surge pricing, or an overall price increase. In such a case, it is likely the price differential between Uber and taxis will narrow – again, making taxis a more competitive alternative.
Finally, Griffith J’s decision in Uber B.V v Commissioner of Taxation has implications for regulation more generally. This decision illustrates the tension between old school regulation and new age thinking. In the age of innovation, are traditional rules sufficiently agile to appropriately apply to new services without limiting creativity and growth?