Higher tax could end ride-hailing firms’ cash burn

Vu Hoang Tam, a mobile marketing expert and former operations manager at Grab Vietnam, said the recent hikes in Grab’s fares were foreseeable since the strategy of splurging money was never meant to last forever.

He was referring to the company’s recent 5-6 percent hike after the government increased the value-added tax to 10 percent, the rate that traditional taxi firms pay. The tax will have to be paid on the full fare unlike earlier when ride-hailing companies paid the 10 percent rate only on their share of the fare after paying off the driver.

Some ride-hailing firms have been relying on revenues from ads and payment services rather than from rides to survive, and "sooner or later" they have to return to market fares since this model is unsustainable, Tam said.

Experts said the new tax levels the playing field for ride-hailing firms and traditional taxi operators.

Tuan Ha, CEO of marketing firm Vinalink, said ride-hailing fares are now similar to regular taxis’.

During rush hour, the former often jump by around 2.8 times, meaning that if traditional taxi firms have enough vehicles, they could beat ride-hailing companies, he added.

Tam said that to be more competitive, traditional firms need to resolve some chronic issues that caused passengers to switch to ride-hailing services in the first place like drivers’ bad attitude, poor hygiene and lack of convenience.

Passengers have become used to hailing a taxi on their smartphone app and to tracking the vehicle location, and so traditional companies need to invest in that, he added.

Ride-hailing ahead

But ride-hailing firms have managed to create a new habit among users over the years they burned cash, according to analysts.

Truong Van Quy, CEO of digital marketing training center EQVN, said they have existed long enough in Vietnam for that, and their flexible fare rates and higher service quality also play a major role in attracting customers.

A VnExpress survey of over 17,600 readers this month found that 48 percent use ride-hailing services whether or not there are promotions.

Thirty one percent said they use traditional taxis because ride-hailing fares have risen, while the remaining 21 percent use ride-hailing services only when there are promotions.

Christian Nguyen, a startup expert, asked reporters last month: "Do you still think about promotions? Do you get into taxis waiting on the street or pick up your phone and order a ride? Most of you do not care about promotions any more because your behavior has been changed."

Ride-hailing company bosses concede that the cash-burning strategy needs to end eventually. Phung Tuan Duc, CEO of Gojek Vietnam, told reporters earlier this month that this amounts basically to paying rents for market share.

"It’s like paying money to rent a house. If you stop paying, you don’t have that house anymore."

But he added that lowering fares is no longer the right strategy.

Other industry insiders said companies only use motorbike and car ride-hailing services to expand into other areas with higher profits such food delivery and finance to build a larger ecosystem, a super app users go to whenever they have any need, something that traditional taxi firms do not have.