According to Decree 126/2020/ND-CP dated October 19, 2020 detailing a number of articles of the Law on Tax Administration, effective from December 5, calculating VAT for booking services of technology services such as Grab, Gojek, also known as individual business cooperation units will change.

Grab Bike drivers also had an increase in their deductions per trip
from 20% to 27,273%. Photo: Internet

Because of this change, on December 7 and 8, a large number of GrabBike drivers gathered in Hanoi, Ho Chi Minh City and Da Nang to protest the new discount rate increase.How does increasing the discount rate affect drivers, Grab and users?

Grab’s specific deductions

In order to implement the provisions of Decree 126, from December 5, Grab increased the VAT discount rate for drivers and increased the price of services.

Accordingly, with the Grab Bike service, the price per km after the first 2km increases from VND3,400 to VND4,000 per km, and if the price is calculated by time, it will increase from VND300 to VND350 per minute. There are also price increases in other Grab services. This means thatthe customer will have to pay additional costs,and the driver also has an increase in deduction per trip.

Specifically, for GrabBike, this ratio will increase from 20% to 27,273%, meaning that the driver's income will drop. For example, with a GrabBike fare of VND25,000, the driver receives only VND17,454 instead of VND20,000 as before.

Talking to areporter fromCustoms News, Ms. Nguyen Hong Van (CauGiay, Hanoi) said that she had never received any notice from Grab about the price increase. However, the rate increase should be adjusted to be reasonable and there must be support from the application providingunits because there were now quite a lot of ride-hailing applications and consumers would be willing to change to another application if there was a more suitable fee.

Mr. Tran Van Dung, a GrabBike driver, said that they wanted transparency and explanation from Grab about this adjustment.In addition, they believed that the increase in the discount rate should not only be borne by the customer, but the Grab side should share a part of the responsibility, it was unfairto push the burden on the drivers.

The impact on drivers and customers from this increase is evident, however, according to Grab, the adjustment of prices and the increase of the discount rate are to comply with Decree 126. According to the regulations and current guidelines as well as requests from the tax authority, Grab is responsible for collecting and paying the driver's tax liability, including 3% VAT and 1.5% personal income tax applicable to partners with income from VND100 million per year, and calculated on the part of the revenue which the partner receives after deducting the cost of using the application.

Where to pay the deduction?

According to Grab, the full 10% VAT is applied to all revenue from the transport business including the transport revenue of the driver partners. Therefore, Grab has proposed a new appropriate fare, and proceeds to deduct 10% VAT obligation from the cost of the trip that users are currently paying. The application usage fee (discount) applied to the driver partners remains unchanged.

According to Decree 126, business cooperation individuals (in this case, the driver partners) are not directly required to declare and pay tax, but the enterprisesare responsible for collecting and paying tax on behalf of the driver partner.

Therefore, Grab's deduction of payabletax, declaration and payment on behalf of the driver partners is in compliance with the provisions of Decree 126. All tax collection on behalf of Grab is paid to the State Treasury and the tax authority confirms the fulfilment of tax obligations.

However, according to the Individual Small Business Tax Administration Department (General Department of Taxation), in recent years, due to the lack of specific guidance on tax policies for business cooperation models with individuals, this means the implementation of tax declaration for the Grab model is not consistent, not in accordance with regulations. Decree 126 of the Government is a guiding document on tax administration, so it specifies more clearly about tax declaration for business cooperation model with individuals, not new regulations on VAT policy.

The VAT policy for public transport remains unchanged, and the tax rate of 10% is applied as before. Thus, the new regulations in Decree 126 do not increase the individual driver's obligations (the driver is only subject to 1.5% PIT if the turnover is over VND100 million), does not increase the freight charge (because 10% VAT policy for transport has not changed). Therefore, Grab is responsible for adjusting the taxable price structure to ensure it does notaffect consumers as well as driver income.

Grab is defined as a transportation business activity, not a technology business activity. Due to the fact that Grab plays a decisive role on freight rates, decides policies for customers, is responsible for transactions with customers, so Grab being responsible for fulfilling legal obligations in all domains (including tax liability) to State agencies, obligations to clients and judicial matters (if any) are true to the nature of economic activity.

"The fact that Grab changed the price policy and discount rate for drivers as of December 5 and said that due to the impact of Decree 126, which led to an increase in rates from 8% to 18% for each type of service. and in different areas, at the same time reducing the proportion to the driver by 7% is not correct," the text of the General Department of Taxation stated.