Taxi apps in Indonesia: Adapting technology to regulation, or vice versa?

Photo: Aaron Parecki/Wikimedia Commons

By Ardi Wirdana

Being the populist president he always aspires to be, Indonesian President Joko Widodo is facing an almighty dilemma over the legal and social issues surrounding the popular app-based taxi services in the country.

On the one hand, app-based taxis like Uber and Grab are illegal, as they don’t meet the requirements needed to establish a legal transportation service in Indonesia. On the other hand, however, they are in increasingly hot demand among Indonesia’s rapidly-growing middle-class, due to the practicality and convenience that the services offer.

In a similar circumstance late last year, when tension started to boil over between conventional and app-based ride-sharing services, the president stuck out his neck to side with app-based services, saying that they are “needed by the people”. This came at the embarrassing expense of his transport ministry, who a few days earlier had issued a ban on such digital services.

Having been reprimanded by the president, Transport Minister Ignatius Jonan then came out with a press release announcing that app-based transportation services are allowed to continue to operate as a solution, until conventional public transportation can improve their services for the people.

This time round, following massive demonstrations and strikes by conventional taxi drivers protesting against their illegal competitors, the pressure is on President Widodo and his government to make the right move.

The government has urged the app-based taxi services to comply with government regulation and has set 31 May as the deadline for obtaining the require permits. The government, however, has not elaborated on the possible sanction in the case of non-compliance.

For the moment, the government is still allowing the app-based services to continue to operate, but has temporarily barred them from adding new drivers and cars.

Call to comply with existing regulations

Since its introduction in Jakarta, Uber always maintained that it is not a transportation company as it does not own vehicles, but considers itself more as a technology company which connects passengers and transportation services through its smartphone app. This is where the problem lies.

While it is true that Uber does not own vehicles to transport passengers, it makes its money by transporting passengers. And in doing so, it has chipped away a considerable chunk of the market share of conventional taxi and other public transportation operators.

What irks conventional taxis operators is that Uber and Grab has been free to delve straight into the public transport market without fulfilling the requirements of a public transport service company, as regulated by a Transport Ministry ministerial regulation.

A clause in the regulation states that every vehicle that is used for public with payment is categorised as public transportation. Every public transportation driver is obligated to bring the vehicle registration document, pass a roadworthiness test, and to hold a business permit and an operating permit monitoring document.

With this regulation in mind, conventional taxis argue that cars operating with Uber or Grab must also undergo and pass regular inspection. The app companies, they further argue, must acquire driver license licenses for public transport.

For the government, it seems that tax is the main concern. The government has on numerous occasions urged the Uber and Grab to establish permanent offices in the country and pay taxes, either as public transport or technology service companies.

If the two companies persist in categorising themselves as a tech company, then they would still have to set up a transport company or at least a cooperative for their drivers, as the 2009 transport law did not recognise a person as public transport provider.

Both Uber and Grab have vowed to comply with the government’s regulations and have started to undergo the process of establishing a cooperative, as a legal umbrella for their drivers. However, some anticipate that this process will not be smooth, as it would require individual car owners to let the ownership of their cars be under the name of the cooperative, which many would be reluctant to do.

Could tech trigger a taxi revolution?

The decision to allow Uber and Grab to operate in the country using cooperatives permit is controversial. Though forming a cooperative will give the drivers a legal entity to operate under, their vehicles will still be under their name and ownership, and therefore not officially categorised as taxis.

This would still give them a considerable advantage over conventional taxis, as they would not need to abide by the taxi price set by the government.

In Indonesia, regional governments are authorised to determine the taxi price in their respective regions, while app-based transportation services leave taxi fares to be determined by market mechanism, charging based on real time taxi supply and demand. This allows them to set affordable fees for consumers.

This policy is seen as unfair by conventional taxi drivers, many of whom have reportedly lost half of their income because of the immense popularity of the cheaper app-based taxis.

Blue Bird, the country’s leading taxi company, has demanded the same treatment and is ready to compete with its app-based counterpart.

According to public policy expert Agung Wasono, this problem could trigger a larger revolution in Indonesia’s taxi market.

Speaking to the Jakarta Globe recently, Agung explained that the emergence of app-based taxis and the permission for them to operate as a cooperative has created an unequal playing field.

“Blue Bird seeks to equal the playing field. With current regulations, they charge their passengers more expensive than Uber or Grab since the price is intervened by the government, not merely by market,” Agung told Jakarta Globe.

Agung added that the government has a responsibility to level out the playing field and therefore could decide to adjust its regulation in order to legalise the popular ride-sharing services and at the same time allow taxi companies to shift to ride-sharing services.