Sharing Economy and Slovak Public Regulations

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The article analyses the present state of regulation of accommodation and taxi services in Slovakia. We then briefly describe the arrival of sharing economy platforms such as Uber and Airbnb into Slovakia. At the end, we present our recommendations for changes in the public regulations, which should consequently better accommodate the presence of sharing economy in the country and fully exploit its potential.

Regulation of Taxi Drivers in Slovakia

Every taxi driver who wants to provide an independent taxi service must obtain a trade licence to be self-employed. Obtaining the licence itself is relatively simple — it takes one to three days and costs about €10. However, the real cost increases due to mandatory contributions and taxes. During the first year, a self-employed person pays only health insurance contributions, but if his or her annual gross income exceeds the limit of €5 148, social insurance contributions must be paid the following year. The minimal social insurance contribution is about €150 per month, and the minimal health insurance contribution is about €60 per month.

Providing taxi service also requires a taxi licence. First, a potential taxi driver must undergo a series of tests and examinations to verify his or her professional, health and psychological competence to drive a taxi. Later, a special examination of the taxi driver (written, oral) must be passed before the taxi licence is issued. In addition, the driver must have been in possession of a regular driving licence for at least 3 years and must be 21 years of age or older.

The fee for the exam is €50. The main problem is that these exams take place within a regulated district (Bratislava, in this case) only once every 3 months for 50 participants.

To pass the exam, it is recommended to attend a specialised seminar in which the applicant gets to know about the exam topics. The seminar fee is about €65. When the potential taxi driver passes the exam, a request can be made for a taxi driver’s card which costs €50.

Then the potential taxi driver must undergo psychological tests to provide proof of psychological skills mandatory for each taxi driver, which costs from €60 to €80, and also undergo health examinations. Financial resources of at least €1000, by a certified statement of assets and liabilities, in addition to a copy of a clear criminal record statement, must be demonstrated.

If the taxi driver has met all the personal requirements, the equipment requirements must be considered. Vehicle used as a taxi cannot be older than 8 years and the driver must provide proof of its ownership. The vehicle has to pass a technical inspection and emission test every year (€50). The vehicle must be marked with the trade name of the taxi company and the banner inscription ‘TAXI’ on the roof and on both front doors, in addition to the telephone number of the taxi service (€70). The taxi driver must install transport schedule and taximeter in a visible place (€400) in the interior. The vehicle must be insured against liability for damage caused by the operation of road passenger transport, passengers, baggage and third parties (€120 annually).

After the taxi driver has met all these conditions, regulations and requirements, district authorities issue a licence for the taxi service. The total initial cost, apart from time cost, reaches an approximate amount of €950.

The Arrival of Uber in Slovakia

Uber came to Slovakia (to the capital city, Bratislava) quite late – in the middle of 2015. It began to provide its services of shared personal transportation without complying with the regulations described above. After a couple of months, some taxi drivers staged a mass protest against Uber, which resulted in more intensive communication between Uber and public institutions. Thereafter, Uber pledged to fulfil the mandatory requirements.

Since 2016, Uber has required its drivers to have a business licence for being self-employed. It has also committed to ensure that its drivers pass the test of professional skills. However, as stated above, these tests are available only four times a year for approx. 200 people per year. The local manager of Uber in Bratislava has estimated that if they wanted to meet this obligation with all of their drivers, it would take them several years. Therefore, drivers of Uber have gone on to offer services without taxi driver licences.

The situation is currently at the waiting stage and Uber continues to provide its services in spite of the fact that it does not comply with the official public regulations. The biggest problem is that Uber drivers, with the current obligation to have a  business licence as self-employed persons, are motivated to drive only to a point when their annual gross revenues do not exceed €5 148, as they do not want to pay the high minimum social contributions.

And this is perhaps one of the reasons why Uber remains a relatively small transportation phenomenon in Bratislava. In fact, approximately 3 500 taxi drivers operate there, while Uber drivers account for only approx. one-tenth of this number.

Recommended Changes in Regulations in the Area of Passenger Transport

It can be clearly concluded from the above analysis that the existing legislation creates unnecessary barriers to entry of new service providers into the industry without creating any tangible benefits for the customers. We therefore recommend that acquiring a separate taxi licence is reduced to simply giving a public notice when applying for self-employment trade certificate. The applicant must be 21 years of age or older and must have been in possession of a regular driving licence for at least 3 years. Furthermore, they must not have caused a traffic accident and have to have a clear criminal record. This will be checked by the public authority without the need for further documentation from the applicant.

As a result, the need to take examination of professional competence will disappear altogether. It consisted of only memorizing useless information such as “the ability to behave in a way which improves the image of the company” or knowledge about “who loads, unloads or anchors luggage.” We further recommend abolishing the need for psychological assessments, which are just an administrative formality. The driver’s merits are sufficiently tested today in the process of obtaining a driving licence. Therefore, a separate taxi-driver’s identity card should be abolished as well.

These measures could save potential taxi drivers hundreds of euros. In addition, we suggest that the obligation to undergo technical inspection and emission test with the vehicle are put on equal footing with other drivers. This means that they should be conducted 4 years after registration and then every 2 years. As a result, drivers could save further €50 a year.

We also propose to change the obligation to have the vehicle properly labelled to a simple recommendation. The decision about labels or advertisement of the service providers on their vehicles should be done by the vehicle or company owners. It is a simple entrepreneurial decision and an incentive of the firm to label its vehicles in order to secure parking in restricted areas and to advertise its services.

Taximeters should be obligatory only for drivers whose prices and income are not recorder by mobile phone applications. Even today, having a billing machine is not mandatory for taxi drivers who use virtual billing machines. Printed receipts could thus be replaced by an electronic confirmation of payment through a device which is connected with the tax authority. In the case of sharing economy which works through internet platforms, taximeters no longer serve their purpose. Therefore, it should remain compulsory only for those taxi drivers who do not use highly transparent practice of mobile phone applications to calculate the price of their service.

Moreover, we suggest abolishing the need to provide written proof of secure taxi stands. Not every taxi business plan is based on waiting for customers. The question of parking in cities is a matter of municipal parking policy and not of business decisions. We also recommend abolishing the duty to demonstrate financial credibility by a certified statement of assets of at least €1000, which is again just a bureaucratic requirement with no real benefit for the customers.

The Question of Taxi Driver Taxation

Every taxi driver who wants to provide an independent taxi service must obtain a self-employment trade licence, which involves several procedures and costs. Obtaining the licence itself is relatively simple — it takes one to three days and costs about €10. However, the real cost increases due to mandatory contributions and taxes. During the first year, a self-employed person pays health insurance contributions only. If their annual gross income exceeds the limit of €5 148, social insurance contributions must be paid the following year as well. In 2016, the minimal social insurance contribution is €142,20 per month, and the minimal health insurance contribution is €60,06 per month (considering the fact that they have increased by 30% during the last 4 years).

From economic point of view, this way of taxing taxi drivers (especially when it comes to irregular drivers of sharing economy platforms) creates inefficiencies known as dead-weight loss. This tax landscape strongly motivates drivers to immediately stop working when their gross monthly income exceeds €429. If their income exceeded this limit, they would have to start paying social contribution next year, which would suddenly increase their costs by the €142,20 per month.

What is more, this equally affects employees who would like to earn a little extra on top of their regular employment. Subsequently, they even have to pay contributions twice; once as employees and once as self-employed. Such a system of taxation is thus again highly discouraging.

The current system is favourable only to existing self-employed who would pay mandatory minimal contributions regardless of whether they join Uber or not. A case in point is the relatively high portion of self-employed among Uber drivers (39%), whereby unemployed represent only 9%, and students and performance contractors only 5,5%. (Full-time workers constitute 39%.) Compared to the US, Uber employs 39% of unemployed, 30% of people with part-time employment elsewhere, and only 31% with full-time employment there.

We therefore primarily suggest reconsidering the double payment of contributions by self-employed. Workers with self-employment trade licence should pay health and social insurance contributions only once. It is equally important to reconsider the limit income associated with social insurance contributions. We propose to set the limit to labour costs at minimum wage, which is €514,55 per month or €6174,60 per year.

Regulations of Accommodation Services

If a person wishes to rent out property in Slovakia on a regular basis and provide basic services (water, gas, electricity, etc.), as well as additional services, such as linen change, breakfast, cleaning, etc., it is necessary to have a licence for being self-employed which presents additional costs – especially in later years of business if the amount of gross revenue exceeds €5 148 annually (as described above).

If the owner wants to rent out property, which has passed inspection for private use only, he must request the construction office for a change in the use of the construction. To do this, it is necessary to submit an application to the competent construction office (€30) with relevant documents (verdict of inspection, sketch of the building, list of ownership and copy of cadastral map), and subsequently, to perform a personal check of fire extinguishers and compliance with hygiene standards (€50). If everything is in order, the competent construction office will begin a re-inspection with its own personal control. The whole process can take from 30 to 60 days.

Thereafter, the host must be familiarised in detail with the Decree of the Ministry of Economy of the Slovak Republic No. 277/2008 Coll., which regulates the categorisation of accommodation facilities and the grading of their classification. The host is responsible for the categorisation and classification of the accommodation facility (premises destined for rent which were originally used for housing, are included in the category: “private accommodation”). When all hygienic requirements for the interior environment, spatial arrangement and functional division, furnishing and operation of the accommodation facilities are ensured, the host must write an operating agenda and submit it to the competent authority (Public Health Authority of the Slovak Republic) for approval (€50). Thereafter, the representative of the Authority visits the facility for the second time and, if everything is in accordance with the rules, approves the operating agenda.

Whereas, in order to ensure hygienic requirements, it is sometimes necessary to invest in the renovation of premises, it is advisable to consult about the operation of the facility with a competent hygienist before renovation. The operation cannot be initiated without the approved operating agenda, preceded by the personal visit of a competent hygienist and physical verification of the requirements directly on the premises of the future accommodation facility. This process can also take from 30 to 60 days. Thus the whole process of compliance with regulations and approval can take up to more than 4 months and cost hundreds of euros. Moreover, the host has to report foreign guests to the Alien Police Department. The host authenticates guests and notes in the guestbook the guest‘s nationality, date of birth, passport number, permanent address and period of stay. In addition, the host must fill out an official form to report the stay of a foreigner and send it to the Alien Police within 5 days.

Finally, the host is required to report his or her activities for accommodation to the tax administrator in the municipality in which the services are provided. The host must complete the form: “The announcement of origin of accommodation”. Accommodation Tax is paid for each night that a person stays at a facility. On average it is 0.50-1.50 euro. This is charged on a monthly basis.

The Arrival of Airbnb in Slovakia

Airbnb does not command its landlords to have a licence for being self-employed, and also does not require an official change in the use of the construction, connected with additional inspection processes. Similarly, Airbnb does not require official hygienic checks, but relies on the reputation mechanisms of the platform.

Public institutions in Slovakia have not yet officially responded to the presence of Airbnb. This is probably caused by the fact that Airbnb has still not played an important role in the Slovak housing sector. Even the local branch of Airbnb does not have its own manager (except for the Manager in the Czech Republic). In principle, one can only conclude that Airbnb significantly unburdens providers of “private accommodation” of costly regulations.

Recommended Changes in Regulations in the Area of Accommodation Services

The description of the regulatory burden on private accommodation as well as relatively low numbers of officially registered hosts, as compared to Airbnb hosts, demonstrate an urgent need for change in these public regulations.

Private accommodation renting is intended for non-professional providers of accommodation. As such, there is no need to require applying to a construction office for a change in the use of the construction with all the related administrative procedures. Residential premises still remain potentially available for private use.

Additionally, if the regulator insists on the facility’s compliance with hygiene standards, he should not require an ex ante inspection and approval by the Regional Public Health Authority. Existing procedures of ex post inspections by the Slovak Trade Inspection should be enough. It would establish whether the host has complied with all regulations of private accommodation. This process could reduce unproductive public expenditure.

However, we also suggest thinking about the strictness and added value of individual requirements of the Decree of the Ministry of Economy. To demand observation and subsequently fine breaches of regulations such as the number of coat-hangers in the closet or the number of glasses on the table is more of an interference with the hosts’ business plan than it is a matter of protection of customers’ health and safety. Regulations should focus on taking just basic safety measures and should emphasize hosts’ direct responsibility for customers’ potential health problems or damage to property.

This simplification will not only save hundreds of euros for fees, speed up the process of complying with regulations by months, and save money on required construction work, it will also motivate currently unregistered hosts to register with the public authorities and start paying municipal accommodation taxes.

Taxes and Contributions of Providers of Accommodation through the Sharing Economy

The existing legislation requires licence for being self-employed from those who rent their private property for short term. However, the status of self-employment involves heavy contribution and tax burden which disproportionately affects people with full- or part-time employment or the unemployed. We therefore recommend putting short-term renting on equal footing with long-term renting in terms of taxes and contributions.

As a result, everyone who rents out their property via an online sharing economy platform would enter into a short-term tenancy agreement with each customer and declare the earnings in annual tax returns.

Conclusions

From the analysis above it should be obvious that the present state of public regulations is not accommodated to the presence of sharing economy in Slovak republic. These regulations create unnecessary barriers to entry of new service providers (using sharing economy) into the industry without creating any tangible benefits for the customers.

Our recommendations for changes in the public regulations should better fit into economy where new technologies are used to satisfy consumers. These changes in regulations should consequently open up the potential of sharing economy and help us to fully exploit its potential in the future.

Robert Chovanculiak
More Liberal Voices