The recent strike of hundreds of Grab drivers reveals new conflicts in the relationship over this no-new economic model.
On December 7, hundreds of Grab drivers in Hanoi and Ho Chi Minh City called on each other to shut down the application and dragged them to Grab headquarters to protest the new deduction that was applied from December 5.
Decree 126/2020 on tax administration has introduced a new way of calculating VAT for businesses in the transport technology market. Specifically, from December 5, VAT increased from 3% to 10% for each ride.
With Grab’s new deduction, many drivers have reacted saying that their income is affected, while they are not subject to taxation.
VAT is a value added tax (VAT), which is understood as an indirect tax. In response to the BBC on December 8, lawyer Le Trung Phat from HCM City explained:
“When this regulation is applied, it means that the cost of traveling will increase and the riders have to pay extra fees. Then units like Grab will declare tax for the drivers based on their revenues.”
According to lawyer Phat, the current technology drivers generally suffer many disadvantages.
Why is it controversial?
According to lawyer Phat, Decree126 guiding the Law on Tax Administration is a typical example. The Law on Value Added Tax in 2008 amended in 2013 and 2016 stipulates that “Value added tax is a tax on the added value of goods and services arising in the process from production and circulation to consumers.”
With this principle, this tax is aimed at consumers, not those who distribute, sell, or provide products or services. Thus, this tax is levied directly on the products and services that the consumer – that is, the customer must pay – rather than affecting the driver running Grab.
However, the controversy erupted when the drivers said that Grab’s charging method was not satisfactory.
According to them, although Grab has increased the rates of some services to compensate for VAT, this increase is not enough to compensate for the income they lose per ride. Others said that Grab increased the fee only 6% to retain the price advantage for customers who use the service. Therefore, the burden of VAT collection is placed on Grab drivers.
Specifically, after Decree 126, the discount rate calculated on the revenue of the ride is adjusted by Grab as follows: the deduction for GrabCar drivers per trip increases from 23.6% to 28,364% for drivers using 20% application usage fee; increased from 28,375% to 32,841% for drivers subject to 25% application usage fee (including application fee + VAT fee + personal income tax).
Thus, the rate of deduction calculated on the revenue of the ride for the driver partner GrabBike increased from 20% to 27,273%.
Reply on VOV, Assoc. Dr. Dinh Trong Thinh, finance – tax expert, assessed:
“It is not correct to increase the VAT rate from 3% to 10%, but Grab used it as an excuse to increase the driver’s deductions. Because this new regulation does not mean increase the tax rate for individual technology drivers, even reduced by only personal income tax, not VAT burden as before.”
According to lawyer Phat, in general, Grab drivers will suffer. He analyzed:
“There is an unsuitable problem here: If traditional taxi companies collect VAT because they are applying the VAT deduction method, they can use the services with invoices to withholding (such as repairing cars, buying gasoline for operation …) while technology drivers are not allowed to apply this, leading to them losing input VAT and having to declare the whole part of VAT. As such, it will affect the interests of technology vehicle drivers.”
Speaking to the BBC, a Grab driver shared:
“As far as I understand, VAT is levied on customers, but in fact, it is directly hit on the driver’s income. Previously, when a driver gets VND100,000 from a client, the company discounts VND20,000. According to the new regulation, the firm will get 20% of each ride and then another 10% from the remaining VND80,000. That means, we lose about 30% of the money per ride, not to mention, the drivers like us do not enjoy health insurance or other benefits while the job is at high risk. Moreover, if you include the cost of gasoline, telephone, etc., drivers can earn only VND60,000 from the total avenue of VND100,000.”
With such numbers, according to this person, he must run more or be more diligent at peak hours to make each ride more expensive. “Like other colleagues, I just want to Grab to calculate how to ensure the driver’s income from charging rates to customers, discounts to adjusting road maps,” he said.
How does Grab respond?
Grab said it will start adopting the policy from 11:00 am of December 5. From this point forward, 10% VAT and 1.5% PIT will be deducted together with the application usage fee, per ride.
On VNExpress, a Grab representative said the firm had to bear part of the VAT amount to share with consumers and driver partners to keep prices competitive. Drivers can reduce their income by about 7% a year if the firm does not increase the basic fare. With the new fare (up 5-6%), Grab calculated, drivers only reduce their income by about 1% a year.
In response to the BBC on December 8, a Grab representative affirmed that the application usage fee (discount) applied to the driver’s partner remained unchanged. At the same time, Grab has carefully considered to propose an appropriate new fare, and at the same time proceeds to deduct 10% VAT obligation from the fare that users currently pay according to Decree 126.
Also in this decree, business co-operation individuals (in this case, the driver’s partner) are not directly required to declare and pay tax but the enterprise is responsible for collecting and paying tax on behalf of the driver’s partner:
“Therefore, Grab will deduct the payable tax, declare, and pay it on behalf of the driver’s partners in accordance with Decree 126. All tax collection on behalf of Grab will be paid to the State Treasury and are confirmed by the tax authorities to fulfill their tax obligations,” the statement sent said.
Woman holds a phone in front of a Grab advertisement
The Grab representative also said that before and right after the issuance of Decree 126, he actively commented on the impact on tax administration agencies. At the same time, the enterprise also repeatedly sent documents asking for guidance on implementing the decree. However, so far Grab has not received an official response from these agencies.
Grab also affirmed that it is actively working with authorities to balance rights and benefits for stakeholders.
Nguyen Trong Nghia, who uses Grab every day, told BBC:
“I spend VND2 million-VND3 million on motorbike taxi every month, now there are price changes, the increase I have to pay will be significant so I will go less. I think types like Grab, Gojek out Life create many advantages for service users, such as not being cut tightly, not being transported around, knowing the price in advance, accumulating points and being safer because at least the driver is managed quite closely.”
“Using technology to save costs also makes these services cheaper than traditional types. That is why I and many people choose. But if Grab is high priced, some important advantages would be useless. It is thought that the state needs to have a reasonable policy to ensure reasonable tax revenue and stimulate the development of this type of technology application and the technical layer must keep up. Do not pull back the development of economic types, of society just because the management capacity cannot keep up.”
What should regulators do?
Judging by the BBC on December 8, Dr. Nguyen Quang A said:
“Technology companies in-car services like Grab or AirBnb hotels are a problem for the state not only in Vietnam but also in the world. Grab drivers are considered employees for the company. Is this the freelance using only Grab services? In fact, there is no widely accepted solution yet. In my opinion, there is a need for further discussion in hopes of finding the right solution.”
“If I were the state, I would not force companies like Grab or Airbnb to stand out as employers like textile companies to pay health insurance and social insurance for workers. But I would collect it all package, for example, 20% of the company’s revenue, on which I provide back to the workers, the drivers … In general, the state needs to manage the revenue from the source, and levy a tax to serve the workers,” suggested Mr. A.
“If each driver grabs gets VND100,000, Grab takes a discount of VND25,000, and from that amount, the state collects 20% into a fund, that fund is to serve employees. My proposal may not be really satisfactory, but I mean we need more discussion and serious research on management policies in order not to stifle and obstruct new and innovative models, but not to allow this type of labor is exploited,” said Dr. A.
Dr. A said that the management policy should not stifle and obstruct new and innovative models, but also not allow this type to exploit workers.
Lawyer Le Trung Phat, director of Law Firm Le Trung Phat, HCM City, told BBC:
“In the context of households entering international countries, Vietnam is facing a huge opportunity for economic development. One of the challenges is how to catch up with the trends and identify them in time, thereby building an institution (which is the legal foundation) to promptly adjust and manage well.”
“If we do not do this well, it will easily lead to the creation of a legal mechanism that does not meet the reality, creating inequity in the application and barriers for investors, as well as those under the impact (including consumers),” said the lawyer.
According to the lawyer, it is necessary to build a really open legal system to ensure national interests and also not create barriers for investors. In particular, according to him, the state needs to build a mechanism for tax collection because this is one of the very important factors.
“This both helps the budget’s revenue and ensures all economic sectors participating in the same field are fair with each other. That way, it is enough to attract potential people to call for development and promote competitive advantages,” Mr. Phat suggested.
Thoibao.de (Translated)
Source: https://www.bbc.com/vietnamese/vietnam-55157318
