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Business & Finance

Uber UK forced to Pay Up £1.5bn in VAT - Why Competition Laws are Necessary?

  • After exploiting loopholes in UK tax law to avoid paying VAT for a long time, Uber UK was forced to pay £1.5bn in VAT.
  • As global companies expand to new developing markets, competition and tax laws must evolve across the globe to protect consumers and domestic industry.
23 Oct 2020
Source: Business Insider
Source: Business Insider

The Good Law Project has forced the HM Revenue and Customs (HMRC) UK to collect £1.5bn in VAT from Uber. The car service has avoided paying VAT by treating its 40,000 UK drivers as separate businesses, which are too small to register for VAT.

As companies like Uber grow bigger and bigger across multiple sectors, dominating entire markets, it becomes difficult to regulate their growing power. Competition authorities across the globe also become hesitant to intervene with the growing power of such companies and startups that bring new technological innovations.

Uber’s case is particularly interesting. One one hand the ride-hailing service claims that its drivers are independent businesses and not employees, but on the other, it has the power to control the prices charged by these drivers.

In the UK, Uber has been able to avoid paying VAT on its booking fees using a loophole in the EU and UK tax rule. Two of Uber’s main competitors, Gett and mytaxi, pay VAT on their fees. Hence, HMRC’s inability to regulate Uber has given it an unfair advantage over its competitors, allowing it to defy the main intent of the VAT law.

VAT payments will cost the company around £1000 a year on average for each of its UK drivers. This amount may increase with an expansion in Uber’s operations in the UK.

Similar loopholes are also exploited by other companies such as Google and Facebook to avoid VAT on transactions with small businesses. However, companies like UBer benefit more from this as drivers’ fees are their main source of revenues.

This issue becomes even more concerning in developing countries like Pakistan where regulatory oversight is weak, services tax law is not comprehensive enough and bigger companies have greater opportunities to engage in rent-seeking behaviour.

Hence, this brings attention to the growing need to transform competition laws and tax regulations across the world as global companies grow in size and expand to new geographical markets.