Last week, the issue of value-added tax (VAT) payments by ride-hailing passengers was reignited with a post by Snapp’s CEO on the social media platform X.
Mohammad Khalaj wrote in the post that according to a 2020 directive, Snapp passengers were exempt from VAT. However, now the tax authorities, contrary to their own directive, have mandated that Snapp is responsible for paying the tax. He believes that if VAT is added to the cost of the ride, it will infringe on consumer rights.
Mohammad Khalaj, CEO of Snapp, wrote in a series of tweets: “According to the 2020 directive from the Tax Administration, Snapp users are exempt from paying value-added tax (VAT). However, contrary to its own directive, the tax authority now requires Snapp to pay this tax, and we are facing a serious threat of backdated VAT payments from 2021. We have appealed to the Administrative Court of Justice as the adjudicating body and hope that the court will uphold the right and support the survival of this business and the rights of its users.
Insufficient understanding of the nature, income, and costs of a business can drive it to the brink of collapse. While it may be natural for each agency to prioritize its own interests, it is not acceptable to have two different definitions of a business: one as a platform subject to VAT and another as a service provider liable for municipal service fees.
The question is, under what law is Snapp required to simultaneously pay VAT to the Tax Administration and municipal service fees to the municipalities? If VAT is added to the cost of the ride, who will be responsible for protecting consumer rights? According to the law, transportation service providers are exempt from VAT, yet the tax authority insists that ride-hailing services do not qualify for this exemption. Exemption from VAT is a legal right for ride-hailing services, as stated in directives, correspondence, and rulings from the Tax Administration. This right should be upheld as a public right so that users can continue to travel at reasonable prices.”
In response, Davood Khodabandeh, Head of Public Relations and Tax Culture at the Tax Administration, stated: “If Snapp claims to provide urban transportation services and commits to ensuring passenger safety, it will be exempt from VAT according to the law. The Tax Administration has provided the company with explanations and necessary guidance in multiple meetings.”
Khodabandeh referred to a clause in Snapp’s terms of use, which states: “Users agree that Snapp does not provide urban transportation services but merely offers a software platform that connects the ordering user with the driver user to facilitate the agreement for transporting goods or making a trip. In Snapp services, the driver user is free to accept or reject a request for transport or a trip.
It seems that, according to the direct statement from Snapp’s CEO, if the value-added tax (VAT) payment is confirmed, the cost of rides may increase. This comes despite the fact that, in late July this year, the Parliament opposed increasing ride-hailing tariffs in response to the illegal collection of VAT. At that time, the Chairman of the Mazandaran Province’s Parliamentary Council announced the Parliament’s opposition to the 10% tariff increase for ride-hailing services due to the illegal VAT collection by the Tax Administration.
He stated, “Unfortunately, the tax authorities, based on the new directive, have demanded VAT from people, and the Parliament opposes the 10% increase in ride-hailing tariffs due to illegal VAT collection by the Tax Administration.”
Reza Hajipour emphasized that the Parliament supports the public in the realm of cyberspace, digital economy, and the internet, and will continue to provide special support for internet businesses in the 12th Parliament. He further stated, “The 10% increase in ride-hailing tariffs due to illegal VAT collection by the Tax Administration contradicts the 2008 law passed by the Parliament. Therefore, we will make every effort to protect public rights.”
He highlighted the effectiveness of ride-hailing services by noting that they handle nearly 100 million trips daily, with 70-75% of these trips conducted by personal vehicles, which lack regulations and oversight. He said, “With the increase in the share of this sector, the 70% share of unregulated personal vehicle trips decreases and shifts to digital platforms, which is a very positive development for national management, digital economy growth, and the organization of this employment-generating transportation sector.”
Hajipour also noted, “According to estimates, more than 70 million active users benefit from these platforms. Without the enforcement of VAT services law, this results in an illegal 10% VAT burden per ride, directly and indirectly causing inflation and higher costs, pushing people towards personal vehicles, and hindering the development of the digital economy.”
Under these circumstances, unfortunately, tax authorities have demanded VAT from ride-hailing companies based on the new directive. The Parliament opposes the 10% tariff increase for ride-hailing services due to illegal VAT collection. This action contradicts the clear law and specific directive that exempts online taxis from VAT. Implementing this would increase inflation and reduce the share of the digital economy in the country. The Ministry of Economy should update regulations to support the digital economy and prevent inflation, making it a priority to support digital economic growth.
Given this, it seems that we will have to wait for a final decision to see if passengers and end users will ultimately face increased travel costs.
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