The recent report that IRAS is working with Uber and Grab to ensure private-hire driver pay taxes.
It has caused widespread unhappiness among the private-hire community.
Many new drivers were disappointed of the unfair tax treatment that private-hire driver and taxi are subjected to. Private hire drivers would need to get their Uber/ Grab commercial car insurance
The burning question that private hire drivers want to know now is no longer Private-Hire vs Taxi, which one is better to earn?
It is how much more taxes private-hire driver earns after tax deductions. We work out the numbers to answer your questions.
Comparison between Taxi Driver and Private-hire earnings
We compare how much taxes would each type of driver pay assuming they earn the same amount of fare.
Assumption –
Both Mr. Taxi and Mr. Private-hire each earn $7500 in nett fare per month
On average, Mr. Taxi rental cost is higher at $100 a day and Mr. Private-hire rental cost is lower at $60 a day
They drive the most popular car the Toyota Prius Hybrid and travel 400km daily, their petrol cost per day is $35. Both pump Petrol
They wash their car everyday @ $5/ wash
They work 365 days a year
Mr. Taxi’s Total Income tax payable for 2017 – $560.50
Now, look at Mr Private Hire Tax obligations from the below table. Similarly using the same assumption as the Taxi Driver. Can you see a big difference in taxes?
Mr. Private-hire Total taxable income payable – $4643.75
Why so much more compared to Mr. Taxi?
***Mr. Private-hire would have a greater net profit due to the lower rental cost. Logically, Mr. Private-hire should be paying slightly higher taxes due to higher profits resulting from lower expenses. Although the net profit is greater than taxi on paper, private-hire Drivers are not allowed to declare car rental, petrol cost, car wash etc as business expenses. Therefore taxable income is based on the total Nett fare for the year which is $91250***
Assuming the unlikely scenario that Mr. Taxi got a super special discount from the Taxi company that brings his rental cost on par with that of a private-hire car at $60 and making the net profit of $54,750 annually, exactly the same to that of a private-hire driver.
The amount of tax that Mr. Taxi would pay would become $1582.50, which is still almost 3 times lesser than that of a Private-Car Driver who will be paying $4643.75
Think this is bad enough for Mr. Private-hire? There is more to be paid! Self-employed private-hire drivers are also required to contribute to their Medisave account.
Assuming both Mr. Taxi and Mr. Private-hire are 40-year-old young man, they would be required to contribute to their Medisave account at 9% of net trade income.
Mr. Taxi – 9% of $40150 = $3613.50
Mr. Private-hire – 9% of $91250 = $6480 (capped at $6480)
Summary
Income Tax
Mr. Taxi’s income tax liability – $560.50
Mr. Private-hire income tax liability – $4643.75
Medisave
Mr. Taxi Medisave liability – $$3613.50
Mr. Private-hire Medisave liability – $$6480
Mr. Private-hire is required to pay $6949.75 more in taxes and Medisave contributions compared to Mr. Taxi.
We know it is so unfair and just adds to the improvements needed in the private-hire system. However, there is unlikely to be any changes in the near future so start saving for your income tax and Medisave liability for the next income tax season in April 2018. You can also forward this news to your high-flying $2000/week private-hire friends and see their priceless reactions!
