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10% on current Uber prices would be a rort - but not by the taxman

Uber will be dudding its customers if it raises prices by 10% just because fares are subject to GST.

According to reports (eg, The Age) Uber will increase fares for UberX travel by 10% because the ATO has ruled that GST applies to such trips.

When the GST was introduced in 2000, businesses were warned by the ACCC that they could not simply increase their prices by 10% to cover the new tax. Instead, they were supposed to identify the savings from the New Tax System and adjust their prices accordingly, and then - where required - add GST to the revised prices.

Most of the costs faced by UberX drivers are subject to GST: a suitable vehicle, fuel, servicing, insurance, mobile phone, and so on. Since they will have to register as businesses in order to collect the GST as required by the ATO, they will also be able to recoup the GST element of those expenses, or at least part of them if those purchases are also used privately.

Since the cost of being a UberX driver falls, so should the fares charged before GST is applied, which means that the actual fare rises should be less than 10%.

Whacking on 10% GST without adjusting prices to reflect reduced costs was called profiteering in 2000, so why is that not the case in 2015?

Uber general manager for Australia David Rohrsheim reportedly told customers "This is not a tax on Uber, but rather an additional tax on the thousands of everyday Australians who earn a flexible income by sharing rides on the Uber platform."

That is wrong on two counts.

Firstly, GST is not a tax on businesses that supply goods or services - it is a tax on their customers.

Secondly, Uber does not do ride sharing. If it did, its drivers would use the platform to notify potential passengers that they would be travelling between two identified locations at a certain time in case anyone wanted to be picked up along the way. But that's not how it works: passengers say where they want to go and drivers go out of their way to take them - just like traditional taxis and hire cars.

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Stephen Withers

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Stephen Withers is one of Australia¹s most experienced IT journalists, having begun his career in the days of 8-bit 'microcomputers'. He covers the gamut from gadgets to enterprise systems. In previous lives he has been an academic, a systems programmer, an IT support manager, and an online services manager. Stephen holds an honours degree in Management Sciences and a PhD in Industrial and Business Studies.