Abdulaziz Janturaev

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The recent developments surrounding Yandex Go’s operations in Uzbekistan, particularly the company’s shift in tax residency and subsequent adjustments to service fees, warrant a critical examination through the lenses of both tax and competition law. This intersection is pivotal in understanding the broader implications of corporate tax strategies on market competition and stakeholder welfare, especially in sectors where monopolistic tendencies are evident. Through this blog post it will be analyzed how these practices can shape a fairer and more competitive market in Uzbekistan.

Shifting the Tax Burden: A Question of Fair Play

Yandex Go’s decision to increase taxi service fees following its recognition as a tax resident in Uzbekistan raises significant concerns regarding the equitable distribution of tax burdens. By effectively transferring a portion of its new fiscal responsibilities onto drivers through increased commissions, Yandex Go appears to be circumventing the potential reduction in its profit margins by leveraging its dominant market position. This strategy not only places an undue financial strain on drivers but also raises questions about the fairness and sustainability of such practices in a competitive market.

 “YandexGo UB” LLC, the entity reportedly operating Yandex Go in the country, which was established on 12th April 2022 requires a deeper inquiry into the tax responsibilities and payments of the company. There are critical questions about the reliance on the official correspondence from Ridetech International B.V. to the Tax Committee. Given the magnitude of the service market controlled by these entities, skepticism arises regarding the adequacy of a mere letter as a basis of trust, especially considering the historical context of significant tax non-payment. This scenario calls for a thorough evaluation of the legal and fiscal responsibilities outlined in their agreement and how these are being upheld or scrutinized by the relevant authorities.

Furthermore, another pressing issue of the taxes Yandex Go, which allegedly avoided paying taxes in the past 4-5 years should not be neglected. The question is: Will there be a similar level of scrutiny and action against Yandex Go like past MTS case for its past tax liabilities?

Concerns are also raised about the issuance of fiscal checks, especially for cash payments. The system appears flawed, with checks for non-cash payments getting stuck in “processing” status and not being properly recorded in the tax database. This issue undermines the reliability of the tax collection process from Yandex Go’s services.

The Monopoly High Price Dilemma: Consumers and Drivers at Risk

The crux of the issue lies in what is often referred to as ‘monopoly high pricing’ – a scenario where a market-dominant entity imposes inflated prices due to the lack of competitive constraints. In the context of Yandex Go, this phenomenon manifests not through direct consumer pricing but via the increased charges imposed on drivers. This approach, while indirectly, could lead to higher fares for consumers or reduced earnings for drivers, both outcomes reflecting the adverse effects of monopolistic practices. The role of competition law here is to ensure that market dominance does not translate into unfair practices that harm consumer interests and stifle market dynamism.

Officially Recognized as Market Dominant in Uzbekistan’s Taxi Service Industry

Recent analysis in the taxi service market of Uzbekistan has led to a significant development and Yandex Go has been officially recognized as a monopolist. The analysis revealed that Yandex Go holds 86.3 percent market share, making it the largest contributor among all economic entities in this sector. This dominant position signifies a substantial influence over market conditions, including pricing and service quality.

On December 4th 2023, as Article 13 of the Law of the Republic of Uzbekistan “On Competition,” YandexGo UB LLC was officially declared an economic entity with a dominant market position in intermediary (aggregator) services for passenger transportation and taxi services. This recognition marks a pivotal moment in the industry, underscoring the significant role of competition law in regulating market dynamics and ensuring fair practices. The acknowledgment of Yandex Go’s dominant position is not just a legal determination, it reflects the broader principles of justice and fairness in the marketplace. This decision is a testament to the efficacy of the legal framework in Uzbekistan in addressing market imbalances and fostering a competitive environment.

Policy Recommendations: Towards a Fairer Framework

To navigate these complexities, it is recommended that Uzbekistan, and similarly positioned countries, consider implementing a more holistic regulatory framework that encompasses both tax and competition policies. This could include mechanisms to ensure that any increase in operational costs due to tax changes does not disproportionately impact service providers or consumers. Additionally, introducing checks on pricing strategies by dominant market players could prevent the potential misuse of market power to shift tax burdens unfairly.

Lessons from Kazakhstan: Antitrust and Fair Pricing

Kazakhstan’s antitrust investigation into Yandex Taxi led to compliance measures, such as limiting fare hikes and implementing driver bonus programs. These initiatives highlight the importance of balancing consumer protection with fair business practices​​. This antitrust investigation may offer valuable insights for Uzbekistan since both countries share similarities in many fields including tackling monopolism, as an example of regulating the taxi service industry. This case exemplifies how antitrust laws can be effectively enforced to ensure a fair and competitive market. One of the significant outcomes of the investigation was the imposition of limits on how much Yandex Taxi could increase its fares, especially during peak times or under special circumstances like bad weather. This measure was designed to protect consumers from exorbitant prices and ensure that fare increases were justified and transparent. To balance the interests of drivers, who are crucial stakeholders in the taxi service ecosystem, Kazakhstan mandated the implementation of bonus programs by Yandex Taxi which aimed to ensure that drivers were adequately compensated and incentivized, particularly since fare limitations could potentially impact their earnings.

Implications for Uzbekistan and Other Markets

Kazakhstan’s approach serves as a case study for Uzbekistan in several ways. First, consumer protection, where an independent company will conduct an audit of algorithmic pricing in collaboration with the agency which can protect consumers from predatory pricing, especially during high-demand periods. Second is driver welfare, which implies introducing bonus programs demonstrates a commitment to safeguarding the interests of taxi drivers, ensuring that regulatory measures do not disproportionately impact their income. Third one is market fairness  meaning that the measures listed above promote a more level playing field in the taxi service market, preventing monopolistic practices and fostering healthy competition. By examining and potentially adapting similar strategies, Uzbekistan can address its challenges in the taxi service industry, particularly concerning market dominance and fair pricing practices. This could lead to a more balanced, competitive, and consumer-friendly market environment.

Integrating Global Practices and Uzbek Legislation

Integrating global practices in fiscal responsibility and transparency into Uzbekistan’s legislation, particularly in sectors like the taxi service industry, can provide significant benefits. In this case countries like Finland may offer exemplary models. Finland is renowned for its high standards in fiscal transparency and tax compliance. The Finnish tax system is characterized by its comprehensive digital infrastructure, which facilitates effective monitoring and compliance. Finland utilizes advanced digital solutions for tax collection and monitoring, which citizens may scrutinize the taxi system’s tax fairness. This includes electronic filing, real-time data processing, and digital auditing systems, making tax evasion and avoidance difficult. In Finland, tax records are publicly available, promoting a culture of transparency and accountability. This approach helps to create a fair playing field for all businesses and ensures public trust in the tax system.

Adapting to Uzbekistan’s legislation

For Uzbekistan, adapting these models involves several steps: a) developing a digital tax system similar to Finland’s, which can efficiently handle tax filing, processing, and auditing; b) making tax records more accessible and public, similar to the Finnish model, to encourage a culture of accountability. By integrating these practices, Uzbekistan can enhance fiscal responsibility and transparency in its taxi service industry, contributing to a more equitable and competitive market.

Conclusion: a Future of Fair Competition

In conclusion, the case of Yandex Go in Uzbekistan presents a compelling illustration of the intricate dance between tax compliance and competition law. As the digital economy continues to evolve, so too must our regulatory frameworks to ensure they foster environments where fair competition and equitable tax practices coexist, thereby safeguarding the interests of all market participants. Drawing from international experiences and adapting them to the local context, alongside strict adherence to national legislation, Uzbekistan can create a thriving, equitable competition law through taxi service industry.

Cite as:  Abdulaziz Janturaev, “Interplay Between Tax and Competition Law vis-à-vis Yandex Go’s Pricing Strategies”, Uzbekistan Law Blog, 20.04.2024.