Why Estonia Introduced a Bill on Ridesharing?

cogdogblog via flickr || Creative Commons

Political leaders from across Europe have great things to say about Estonia’s leadership on digital technology. They applaud our e-voting and e-tax systems. They praise our widespread access to high-speed Internet. And more than one cabinet minister has told me how envious he or she was of our paperless cabinet meetings. Estonia’s embrace of new technology is a model for Europe.

In 2013, by the estimate of PricewaterhouseCoopers, the five main sharing economy sectors generate $15bn in global revenues. These five sectors are peer-to-peer finance, online staffing, peer-to-peer accommodation, car sharing and music and video streaming. However, by 2025, these same five sharing economy sectors could generate a potential revenue opportunity worth $335bn. In my opinion, any country which ignores a sector growing 22 times over the course of a dozen of years is being simply ignorant. You cannot “turn off the internet”.The sharing economy is here to stay. And new economy needs new regulations. Rules that work in today’s world.

The core driving factor of the sharing economy is that technology allows us to capitalize previously underutilized capital. Our own apartments for AirBnB, our own cars for Uber, etc. It is a massive engine to increase efficiency. It is a business revolution, but it also has the potential to be an environmental and economic one. Environmental aspects are relevant especially if you think about the limited resources and growing world population.

Lately some of our fellow Europeans seem unsure about a recent technological development: ridesharing platforms, like Uber and Taxify, that are increasing transportation choices in cities across the EU and the world. But outdated regulations are holding Europe back. Governments, often under pressure from vested interests, have moved slowly toward the necessary reforms, even when the situation today is clearly not optimal for their citizens or their cities.

We must have this discussion in Europe because, unlike in the US where “anything not explicitly forbidden is explicitly allowed”, in the EU “anything not explicitly allowed is implicitly forbidden”. It is why we have decided to regulate ridesharing as a self-standing activity in Estonia. Ridesharing is not a public transportation. Ridesharing service is not a taxi service. We see it as a solution for mobility challenges. Although the existing regulatory frameworks do not ban Uber or AirBnB, they make it as hard to run sharing economy services as it is to “run Skype on MsDos”. It is just suboptimal.

The goal of the regulation is to continue guaranteeing public safety, consumer choice, while becoming as frictionless as technology-driven services can be. If well regulated, we stand much to gain from the growth of these platforms. Some people think this is a matter of new services like Uber disrupting traditional services like taxis. But it is not about ridesharing vs. taxi – it is about ridesharing vs. private cars. Today four-fifths of all journeys taken in Estonia happen in a car. Our car ownership rate is growing quickly. And the average Estonian family now spends 12% of their income every month just on transportation.

Public transit is important and we should be exploring programs to develop a more efficient public transport scheme. However, ridesharing services can help too. The technology behind these apps can match two people going in the same direction, who can share a ride and the cost. The ultimate vision is more people using fewer cars, and fewer people needing to buy a car to begin with. This is good for the environment: it can reduce congestion, and can lower the cost of living.

Platforms like Uber, Taxify and Wisemile can also benefit government’s balance sheets by bringing economic activity that was previously done off the books into the digital world where everything can be traced. Estonia is already a leader on simple electronic tax filings. Taking care of tax affairs diligently yet with minimal effort is intrinsic to us. Most Estonian citizens file their tax return with just a few clicks online. Earlier this year, the Estonian Tax and Customs Board announced a partnership with Uber to collaborate on a new e-tax system that would simplify the process of declaring taxes for people using these new platforms for work. In fact, in February Estonia became the first country in the world where Uber drivers opted in to voluntarily share their tax related information and declare their taxes electronically.

In our experience people pay taxes when it´s fair and simple. The pilot with Uber was successful – respectable amount of their partner-drivers declared their taxes automatically, on volunteer basis. And as the head of our tax office insists, the specific number is not even important. The bottom line is – this approach works. And besides, there is practically nothing to lose – cash based taxi sector is not known as tax compliant… The experience gained of this cooperation with Uber is to be expanded to other sharing economy and e-commerce platforms. And we even go one step further. Last month, the head of Estonian tax office offered in a meeting with Uber vice president that Estonia can provide electronic tax platform for Uber drivers globally.

These business models do not just mean better competition and better service levels, but they may also become a part of the solution to Estonia’s sparse population issue, and incent a lot more people to become entrepreneurs. Here again, I hope Estonia can lead. In February, we introduced a draft legislation that would regulate ridesharing for the first time in Europe. Last week we already passed first reading in the Parliament. Our goal is to create rules that work in today’s world. The legislation would ensure digital platforms are given clear rules on how they can operate in Estonia, reduce people’s need to own their private car, create smarter ways to organise our cities, generate new economic opportunities for thousands of Estonians and ensure Estonia continues to lead Europe in digital implementation.

Technology allows us to make use of existing resources in smart and flexible ways. Regulations should be just as smart and flexible. Europe must embrace the digital revolution and Estonia has a definite wish to be on the forefront of it. So would it not be reasonable – at a time when a large part of the world is finding protectionist reasons to prohibit the sharing economy – if we, Estonia, would be the first country to welcome Uber, Taxify and Airbnb?

Kalle Palling
Academy of Liberalism