The reasoning for the move by the Government was suspect since public transport is in a sorry state of affairs in Pakistan. Bans on services like these are counter productive and rightly so, the High Court barred the Govt from any action against Uber and Careem.
Soon after the entire episode, Careem and Uber both started to get very positive media coverage and the MD of Careem started showing up on majority of media channels. However in his interviews, he revealed some very important points which, as an independent audience member and a person associated with Fin-tech sector, made me think…and I started connecting the dots.
Junaid Iqbal mentioned that Careem is a 100% Pakistani product and we should be proud of that. The MD also said that the ride sharing is a novel concept and regulation for it is in nascent stages. I agree with the sentiment and the Govt needs to work out a regulatory framework for ride sharing apps and similar services.
However, when you ask the Government to form new regulations, I don’t think it is asking too much for you to follow the currently existing ones. Why am I saying this?
- The SECP mandates all companies registered in Pakistan to share all information about offshore companies.
- There is an annual corporate tax that any and all organisations have to pay to Govt annually and it is 34% as of now.
- On all transactions being done in a Pakistan based payment gateway, FED is paid out to Govt.
Let’s take a typical use-case of a ride in Careem – paid out in cash
Passenger opens up app, books a ride. captain receives cash. The typical split on every ride is 20/80. So 20% of the total ride goes to Careem. The captain pays it to Careem.
Making some simple calculations:
Let’s say Careem have 2,000 cars in Karachi and every car takes around 10 rides with average ticket size of 300 PKR. It will mean a total of PKR 6 million in daily earnings.
Out of the 6 million total amount, 1.2 million is Careem’s revenue in a single day. Multiply it by 3 i.e. KLI (Karachi,Lahore,Islamabad) and you get 3.6 million. That means the company’s monthly revenue is 108 Million PKR.
Multiply that by 12 and you get a yearly revenue of 1,296 Million PKR.
Let’s say Careem’s spends 500 Million PKR on operations per year which includes salaries, servers and other costs. That leaves 796 million revenue on which Careem would have to pay a corporate tax @ 34%, which comes out to be around 270.64 million PKR.
I want to clarify that the estimates that I have taken above are very low and just for the sake of simplicity.
Ok, so 27.064 Crores would be the Net Tax liability of Careem. Does Careem actually pay this much amount to FBR is an important point to ponder. In my research, the top tax payers list of FBR doesn’t show Careem Networks.
That’s not all. Our media was abuzz with the news when Careem raised 350 million. This raises a big question: If Operations & Technology for Careem are 100% Pakistani or based out of Pakistan (like they market it), why did the $350 million go into its Middle East arm?
Still our govt is more concerned about the registration of the cars. It’s a pity really.
Now let’s take an example of a little complex use-case – Payment via Credit Card.
Passenger open up app, books a ride and the payment is done via Credit Card.
It’s the same process as when I order a pizza from Pizza Hut. Or is it?
To understand where the difference lies, we first have to understand the dynamics of eCommerce payments.
Three key entities are involved in a typical eCommerce transactions
- Issuer ( The Bank which issues card to customer )
- Acquirer ( The Bank which give a facility to merchant in order to charge other customers )
- Payment schemes ( VISA / MC / Unionpay )
In a typical eCommerce transaction, an Issuer Customer is charged and the amount goes to Acquiring merchant account
The above scheme of things allows a typical transaction to occur in a cross border environment i.e. Merchant can be sitting in Paris (Europe) while customer is in Pakistan and the money goes from Pakistan to Europe in just a few clicks.
Coming back to our point of buying a pizza from Pizza hut. The transaction being done on Pizza Hut is completely different. MCR Private Ltd have an account in Pakistan and a Merchant account in Pakistan. So for every transaction occurring on the Pizza Hut application or website has FED directly deducted out of it.
Talking about Careem, the transactions get done on some international payment gateway which transfers money out of Pakistan and the trail is completely invisible for the tax authorities in Pakistan. For the transaction to be part of corporate tax, it has to be processed within Pakistan.
In the case of Uber. it uses an EU payment gateway for processing all transactions in Europe, Stripe in USA for processing all transactions and Paytm in India (Yes, Indian Government has mandated them to use a local payment gateway for transactions within the country.)
While I am in no way suggesting that these companies select a local payment gateway, the Government should be provided more transparency so that the local economy is strengthened.
Are Drivers Taxed for the Income?
We know that drivers, captains or whatever you call them, earn well north of PKR 50,000 (over 100k in some cases) and they are not taxed for this income.
The only applicable tax is a 10 percent flat tax rate for freelancers as Careem or Uber don’t employ these drivers; instead, they treat them as freelancers. While regulating these ride hailing services, I hope that government will ensure that everyone is taxed on equal grounds.
To sum it up, there is no doubt that these services provide jobs. But at the same time, high tech companies also have a greater corporate responsibility. Hopefully, they live up to that and play fair in Pakistan.
The author is Head of Software Development at Monet Pvt Ltd.
Note: Uber and Careem declined to comment on the story.
Disclaimer: The views & opinions expressed in this or any guest post featured on our site are those of the guest authors’ and do not necessarily reflect the opinions & views of ProPakistani as a whole.