Hailing ride to better urban mobility

Hailing ride to better urban mobility

The emergence of ride-hailing firms such as Uber and Grab, which recently merged their services in Southeast Asia, has received mixed responses. With the use of smartphone apps to connect commuters with drivers, this service, said to be a disruptive innovation to the existing point-to-point transport industry, has enjoyed consumer support due to its convenience and other benefits.

On the other hand, regulators in many countries have been saying the service violates existing laws that protect consumers while traditional taxi drivers and firms have complained about unfair competition. There have been various responses, from calls for legal reform to a total ban.

In Thailand, ride-sharing firms have been operational for four years but no legal frameworks have been established for this type of service. As the result, ride sharing is considered "illegal" by transport authorities, prompting them to arrest drivers. This is because the Motor Vehicle Act 1979 bars vehicles not registered for public transport from providing such a service. It requires taxi drivers to possess a public transport driving licence. Meanwhile, operators must adopt fixed-fare rates stated in Transport Ministry regulations.

In fact, we can learn from other countries such as the US, Australia, Singapore and the Philippines whose governments have developed new regulatory frameworks aiming to promote and legalise a safe, robust and efficient ride-sharing market. Thailand can come up with reforms for three main regulatory issues -- market access, protection of public interests and fair competition.

Regarding market access, Thai law and regulations require drivers, vehicles and operators to meet certain requirements for service quality and safety standards. However, there are no specific regulations for ride-hailing services, forcing the operators to set their own criteria when recruiting drivers.

To streamline ride-hailing services with standard taxi operations, the US and Singapore have set basic requirements for ride-sharing operators including vehicle registration, inspecting and displaying stickers on drivers' vehicles to help commuters identify registered cars and facilitate law enforcement. Drivers must also undergo background checks and apply for a public vehicle driving licence to ensure they have the necessary driving skills and knowledge of relevant laws.

Some countries such as Australia also require ride-hailing operators to register and obtain an operating licence to ensure compliance with vehicle and driver standards.

As for the protection of the public interest, particularly insurance and tax issues, there is no existing requirement for insurance coverage from ride-hailing service operators in Thailand. Under the Office of the Insurance Commission's regulations, if an accident occurs, insurance for private cars does not cover their commercial services. The city of Chicago in the US requires that ride-sharing vehicles must have commercial insurance with a certain minimum coverage, and Thailand may consider this option.

In addition, there are many types of tax relating to transport services such as income tax, value-added tax (VAT) and the public vehicle tax. Since ride-hailing firms are transnational by nature, there is no clear legal framework in Thailand that stipulates their service as a public transport one subject to tax obligations. Therefore, the existing tax regime may not be applicable.

To resolve the tax hurdles, countries such as the US and Australia have adopted tax structures to accommodate rapidly changing economies that rely more on internet-based services, requiring that ride-hailing firms register in the countries where they operate. The new tax structures also make these companies subject to VAT and the goods and service tax.

The last issue centres on the need for regulation to ensure fair competition and a level playing field in the public transport industry. Ride-hailing companies in Thailand are currently unregulated and have a cost advantage over traditional taxis because they don't have to absorb the wide range of expenditure required by law such as public vehicle licence fees, insurance coverage, installation of equipment (radio communicators, fare meters and GPS devices) and the cost of changing the colour of taxis.

Traditional taxi operators thus bear a greater financial burden. Fair competition can be initiated by effective dialogue between stakeholders in the decision-making processes. For example, many countries have imposed clear rules that only traditional taxis can be hailed and pick up customers by the road or at taxi stands, while ride-hailing services can only take passengers via applications.

Another important aspect of fair competition is pricing. Ride-sharing services have introduced a "dynamic pricing" system with goals to incorporate market mechanisms, to ensure that demand meets supply and to incentivise drivers to provide a service on time or at a place where there is demand. The system thus gives this type of operator more flexibility in setting prices while traditional taxi operators have to comply with the price ceiling established by law.

To ensure fairer competition, many countries allow flexible and dynamic pricing but, at the same time, set certain standards such as the need for drivers to inform their customers of fare rates prior to providing the service.

Imposing new legal frameworks and policies for ride-hailing service operators in Thailand will face challenges in many areas. It requires a deep understanding of the industry. Moreover, authorities cannot impose new regulations without re-evaluating the existing ones.

The ultimate goal of setting new frameworks and policies is to pave the way for development and innovation, while improving mobility, safety, consumer welfare and sustainability for urban mobility.

Gunn Jiravuttipong and Natcha O-charoen are researcher at Thailand Development Research Institute (TDRI). Policy analyses from the TDRI appear in the Bangkok Post on alternate Wednesdays.

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