96% of taxi market is still informal, and regulation instruments do not work

30-11-2018

In Ukraine, the total volume of the taxi market is about 40 billion UAH per year. Only 1 billion UAH of this amount is the share of the “official” segment. The rest of it (about 96% of the market) is in the informal economy, and its participants hide their actual activities completely or partially, working without a license provided by law. For example, only 13 thousand out of 220 thousand taxi drivers are licensed carriers. Therefore, the market is characterized by low quality of services, a lack of responsibility of carriers and ineffective instruments for monitoring. At the same time, 200 thousand cars owned mainly by private persons are used in transportation services serving 280 million passengers annually.

The modern market is based on business models: now it is distributed between carriers (36 billion UAH) and mobility service providers (MSP), which are aggregators of orders (4 billion UAH) providing intermediary services to passengers and carriers without monitoring the movement of carriers, the technical condition of vehicles, the medical condition of drivers and so on. The current regulation can not ensure the efficient market operation and should be changed.

The government, business, public and expert community representatives discussed the market problems during the Roundtable “Taxi market: how to balance the market and guarantee the transportation safety ” on November 30. The event was organized by the BRDO Office with the support of EU4Business/FORBIZ as part of the Public Dialogue #PRODialogue.

BRDO experts conducted a systematic market analysis and found out that 9 of 40 regulatory acts were irrelevant and another 6 acts had signs of being illegal. Moreover, all 12 regulatory instruments have regulatory gaps and provoke high corruption risks due to unclear and non-transparent procedures.

“In fact, licenses for domestic carriage of passengers by taxi, which are the main instrument of market regulation, do not work and do not ensure the safety of passengers. The instruments designed to provide control over the performance and quality of services and financial estimates are also ineffective. This sector requires regulatory changes to create a competitive market, ensure the transportation safety and introduce transparent tax records in today’s realities,” Vladislav Prytomanov, the Infrastructure sector head at BRDO, said when presenting the research.

One of the significant market problems is unequal business conditions for legal and illegal operators. The latter do not face costs to obtain licenses and do not pay taxes, so they have significant competitive advantages in terms of price factor. For example, by avoiding paying taxes, illegal MSP can offer carriers a 20% lower fee than the legal ones. At the same time, there is no control over identifying illegal market participants, and regulation sometimes leads to the impossibility of conducting a legal business and moving to the informal economy. Only in 2017, 8 thousand licenses of carriers who closed corresponding IEs were cancelled, and this is one third of all licenses issued for this type of activity.

In addition, due to the mostly informal taxi market, the state budget receives only up to 1-3% of the minimum projected taxes and duties in this sector each year, while the UST, which has not been received, is 1.4% of the total revenues to the Pension Fund.

Viktor Sasin, the Director of the Department for Strategic Development of the Road Market and Road Transport of the Ministry of Infrastructure, agrees with above-mentioned problems. “The market should become legal and formal. We are ready to actively work on the relevant legislative changes together with all market participants. We hope to create a working group upon the order of the Minister this year,” he said.

In Ukraine, the average taxi fare is relatively low compared to other European countries – 60-90 UAH for 10 km within the city. However, the questionable transportation safety and a lack of responsibility of carriers are the negative aspects. According to the “Rules of providing passenger transport services” approved by the CMU Resolution, a taxi driver is responsible for the lives and health of passengers, but it is not clearly defined. And given the fact that most drivers do not work officially, this provision is ineffective. As for MSPs, they are not responsible for passengers at all, since, on paper, they provide only information services.

According to BRDO, improving the market situation requires:

– Cancelling licenses for “domestic carriage of passengers by taxi” and introducing a declarative principle of economic activity. This will minimize the possibilities for corruption and make the legal work in the market less burdensome.

– Implementing a transparent procedure to issue permits (for a period of no more than 1 year) for activities in this sector on a fixed fee-paying basis. The fee for issuing such a permit will include all taxes and fees paid by a carrier for the period without the need to register a legal entity or an IE. Such a document will simplify access to the market along with the tax administration process, as well as establish requirements for vehicles and drivers and formalize activities of participants for state control over the quality of services.

It should be noted that according to the Association Agreement with the EU, Ukraine is obliged to introduce mandatory testing of the operational suitability of vehicles used as taxis in one year after the date of their first registration and annually thereafter by 2022.

” In Europe, we managed to create a well-established regulatory system in taxi transportation: we have safe, comfortable transport and a transparent business environment. are ready to share our experience and support Ukraine in the reform of this sector,” Teodora Andreeva, transport project manager of EU Delegation to Ukraine, said.

The event was attended by Oleksandr Dyachenko, the representative of the Association of Responsible Carriers and Uklon, Taras Potichny, the Head of Taxify in Ukraine, Oleksandr Ilkov, the Kesarev Consulting partner, and business, expert community and media representatives.

More information is available at www.brdo.com.ua and www.regulation.gov.ua.

Partners