The company’s Taiwan business is still growing despite being in regulatory limbo and facing mounting opposition from lawmakers and the taxi industry.

Brittany Holtsinger swears by Uber. The Taipei-based digital marketing strategist uses the ride-hailing app four to five times a week, opting for a taxi only when Uber’s rush-hour surcharges make its prices less competitive. “Uber is my preferred transportation method,” she says. Citing the ability to rate Uber’s drivers in online reviews, she says the app “offers more accountability than taxis,” noting that “the drivers are motivated to offer better service, and the company doesn’t hesitate to reimburse you for the cost of a ride if something goes wrong.”

Holtsinger is one of the many Taiwan residents embracing Uber and by extension the sharing economy – an umbrella term for an economic model in which individuals borrow or rent assets owned by someone else. Drivers are as enthusiastic about Uber as the passengers, says Likai Gu, Uber Taiwan’s general manager. “People feel like income levels are low in Taiwan,” he says. Driving for Uber, Gu adds, “is a great way to increase income” and make better use of an existing asset – a car.

Through July, Uber had provided more than 10 million rides in Taiwan and recorded NT$3 billion in revenue over its three-plus years here, according to the Taipei City Professional Drivers’ Union. This month the company launched its UberEats food-delivery service, which – for the cost of the ordered food plus a delivery fee – brings meals to the doors of customers via car or motorcycle. About 100 Taipei restaurants are partnering with Uber in the venture.

Yet to date, enthusiasm for Uber – the world’s largest technology start-up and ride-hailing app – has not persuaded Taiwanese regulators to legalize its service. Regulators say Uber is illegally operating a passenger transportation service, a sector of the economy closed to foreign businesses. The San Francisco-based company is licensed to operate in Taiwan as an information service provider.

While stopping short of banning Uber, the government has imposed stiff financial penalties on the company. As of early November, Uber Taiwan had accrued NT$74.82 million in fines. The company was fined NT$54.8 million and its drivers NT$20 million.

Taxes are another point of contention. In 2015, the company earned an estimated NT$20 million in Taiwan, but paid just NT$1 million in tax. “Uber’s passengers in Taiwan pay Uber drivers via an app which is bundled with credit cards that pay to Uber’s office in Amsterdam and bypass Taiwan’s government,” says Nephy Hu, an industry analyst with the semi-governmental Market Intelligence & Consulting Institute (MIC).  “It isn’t fair to other transportation service providers.”

In November, the Taiwanese authorities doubled down on their opposition to Uber, requesting that Apple and Google remove Uber apps from their websites “to protect the rights of consumers in Taiwan.” Hochen Tan, Minister of Transportation and Communications (MOTC), told reporters at a press conference that the ride-sharing company should devote itself to related business other than taxi services so as “to comply with current laws.” Such activity might involve simply connecting taxis with passengers, he said.

The government intends to fine Uber “continuously” if it offers paid taxi services in Taiwan, Hochen said. “The government’s bottom line is that Uber must operate in line with government regulations and pay taxes and public transportation insurance fees like any other taxi-service provider,” he was quoted as saying in a November report by Taiwan’s Central News Agency.

Long standoff

The government’s hard line against the company’s provision of transportation services has been consistent, with officials in both the Ma Ying-jeou and Tsai Ing-wen administrations taking a similar stance. Resistance to Uber by the Taiwan regulators has exceeded that of their counterparts in other Asia-Pacific markets like the Philippines, Singapore, Australia, and even China.

Part of the blame for the antagonistic relationship between Uber and the regulators is attributable to the company’s gung-ho attitude when it arrived in Taiwan, says one person close to the matter, speaking with Taiwan Business TOPICS on condition of anonymity. “They burst onto the scene and said, ‘we’re an information services company – we’re just going to do this.’ They didn’t communicate with the government at all.”

“As a foreign company, Uber should have been more careful,” the source continues. “Taiwan has a long history of being colonized, and you don’t want to appear as if you have a colonizing menality.”

Acknowledging that “cultural misunderstandings” may have occurred between Uber and the Taiwanese authorities, Gu says the company is making gradual progress in its talks with the government. “People are still arriving at an understanding of what ride-sharing means,” he adds.

Among the most strident opponents of Uber is the taxi industry. Industry representatives say the company’s tax dodging and insurance exemptions allow it to undercut taxis on pricing, which is battering the bottom line for drivers and dispatch companies.

In August, members of the Taipei City Professional Drivers’ Union filed charges against Uber’s Gu for violations of the Company Act, and Cheng Li-chia, the organization’s president, has criticized the government for appearing limpid in the face of Uber’s continued operation in Taiwan. “The Ministry of Transportation and Communications [MOTC] says they will not allow Uber to continue operating as long as it is illegal, but it has already been four years since the firm’s entrance — what the hell are they doing?” he was quoted as saying in an August report in the English-language Taipei Times. Uber had been operating in Taiwan for a little over three years when he made that statement.

Wang Chang-koo, a former restaurant owner who now drives in Taipei City for Taiwan Taxi, the nation’s largest taxi company, is among the cabbies who are vehemently anti-Uber. He faults Uber for flooding an already saturated taxi market with “unprofessional” drivers. Unlike Uber drivers, “we taxi drivers are professionals; we have to pass a driving test before we’re licensed to take fares,” he says. By contrast, “Uber has these young guys driving Mercedes or BMWs. They’re trying to meet girls, to impress them with their cars.”

Some taxi drivers are more sanguine about Uber. “If it meant I could earn more money, I’d be interested in working for both a taxi company and Uber,” says Lai Wen-tsong, a driver based in New Taipei City. Current regulations prohibit that, however.

Jamie Lin, co-founder of the Taipei-based AppWorks accelerator and an expert on the mobile internet, believes taxi dispatch companies have pressured the government to continue fighting Uber. “The dispatch companies are holding the taxi drivers hostage,” he says, noting that they require drivers to have an exclusive relationship with them. “The dispatch companies are afraid they will go out of business if drivers are allowed to also drive for Uber.”

David Plouffe, Barack Obama’s 2008 presidential campaign manager and now chief adviser and a board director at Uber, criticized the behavior of taxi owners during a November panel discussion in Taipei. “All over the world, taxi drivers are driving on the Uber platform too,” he said. In Taiwan, drivers “are being told by the taxi owners…that this really is a zero-sum game, that it’s a choice between one or the other, and that’s really a false choice.”

Uber executives cheer the ride-hailing app as a flexible income generator for drivers. In Taiwan, where salaries have been stagnant for nearly two decades, that opportunity resonates. Drivers interviewed by Taiwan Business TOPICS spoke highly of their working relationship with Uber. They requested anonymity given the lack of legal recognition in Taiwan for the company’s transportation operations.

A former insurance salesman who is now a full-time Uber driver (working roughly eight hours a day) says he earns about NT$50,000 a month after deducting the cost of gasoline and the 20-25% of earnings he needs to turn over to Uber. That’s more than many office workers net. He plans to continue driving for Uber for the foreseeable future, citing the flexible hours and decent pay.

A former delivery truck driver switched to Uber because he suffered injuries lifting heavy loads over more than a decade. “Uber is much less physically demanding and the money’s pretty good,” he says. And he doesn’t need to worry about fines eating into his earnings, as Uber covers them. “I don’t think they would be able to attract many drivers if they didn’t,” he says.

With driver enthusiasm high, Uber’s Gu says the company would like to expand in Taiwan to help the government solve nagging transportation issues. He points to locations, outside of major metropolitan areas, “where people are forced to ride scooters because that’s really the only way they can get around.” In addition, “if we can provide more mobility options for senior citizens and for those who cannot afford to buy a car, we can solve a social problem,” he says. “But we need the right regulations to support that development.”

Bumpy road to resolution

As mentioned above, several neighboring Asian countries have moved to embrace Uber. For instance, in May 2015 the Philippines became the first country to implement national ride-hailing regulations, paving the way for Uber and its counterparts to operate throughout the country. The Philippines authorities said app-based transportation services were needed to relieve congestion in the capital of Manila.

Singapore has also decided to welcome Uber. Its Parliament announced in April that ride-hailing services would be regulated by early 2017. Their drivers will be required to obtain a vocational license, pass a health check and background screenings, and “comply with a demerit point system.” Vehicles used for ride-hailing services will be required to register with Singapore’s Land Transport Authority (LTA) and display a decal for easy identification.

“The sharing economy and in particular new business models like Grab [another ride-hailing service] and Uber are benefitting commuters globally,” Singapore Transport Minister Khaw Boon Wan said during an address to Parliament in April. “Many countries have taken the wrong turn by banning Uber. But we should not obstruct innovation…We should be mindful of the disruption to incumbents and help incumbents make the correct adjustments.”

Singapore regulators “are forward thinking,” says Gu. “They embrace the integration of technology and transportation.”

MIC analyst Hu emphasizes the importance of bringing Uber under proper regulation, citing a recent rape case – the first in Taiwan – as evidence of the risks of operating without it. According to local media reports, Uber driver Chen Yu-te received a call at approximately 3 a.m. on August 15 to pick up a passenger in Taipei. The female passenger requested that Chen drive her to a karaoke bar in Taipei’s Ximending neighborhood. By the time they reached the karaoke bar, the woman had lost consciousness and was unresponsive. Chen “reported completion of service to Uber and drove the woman to a motel in Taoyuan’s Gueishan District, where he raped her,” the English-language Taipei Times reported.

The woman later called the police, who were able to determine the suspect’s whereabouts using dispatch and vehicle-location records in the Uber app on the victim’s handset. When brought in for questioning, Chen confessed to the rape. He told the police he had considered leaving the woman at a police station, but feared he would be fined since Uber is illegal in Taiwan.

“Without the government’s regulation, all passengers may be exposed to transportation that is potentially dangerous,” Hu says.

Meanwhile, the government is upping the ante in its battle with Uber. On UberEats’ first day of service in mid-November, the Directorate-General of Highways (DGH) issued NT$600,000 (US$18,826) in fines to Uber Taiwan and motorcyclists providing the delivery service. The DGH said Uber violated article 77 of the Highway Act, with each infraction carrying a penalty of NT$50,000 to NT$150,000. Motorcyclists serving as UberEats couriers could have their licenses revoked for between two and six months, the DGH said.

In late November, the Legislative Yuan will convene to discuss amending the Highway Act to further raise the stakes of illegal taxi operations. The Democratic Progressive Party (DPP) caucus has proposed substantially increasing the potential fines – from the current NT$50,000-$150,000 to NT$100,000-$25 million. The amendment would also provide for a financial reward system to encourage members of the public to report Uber drivers to the authorities.

It is far from certain whether Uber and Taiwanese regulators will find a way out of the current impasse. MOTC’s “diversified taxi” program announced in October does not look promising. While the program would allow drivers to use their own vehicles rather than yellow cabs, and does not require them to work exclusively with a traditional dispatch company, it stipulates that fares not be set below those of yellow cabs. Local governments will decide the maximum fare.

So far the criteria for obtaining a license to operate such “diversified taxis” remain nebulous. MOTC has said that interested applicants must submit a business plan, along with separate proposals on “smart management” and “value-added” services.

AppWorks’ Lin says the government is focused on providing taxis with an alternative ride-hailing platform to compete with Uber. “The government’s priority is not provide a pathway for Uber to become legal in Taiwan, but to save the taxi drivers,” he says. He notes that Uber was not invited to a recent taxi-hailing app demo day sponsored by the government.

If the Taiwanese authorities do decide to welcome the sharing economy, the benefits for Taiwan could be significant, Hu observes. “Fully embracing the sharing economy will certainly aid Taiwan’s industrial transformation,” he says. He notes that the sharing economy has relatively low barriers to entry, can be integrated with existing industry business models, and can connect to IoT applications. “Using their personal mobile device, consumers can access all sorts of sharing services,” he says.

By contrast, rejecting the sharing economy could be detrimental for Taiwan’s industrial-transformation ambitions. “In the case of ride-sharing, it’s becoming an enormously important part of the economy in most places,” said Uber’s Plouffe during the November forum in Taipei. “To be saying you want to be the Silicon Valley of Asia, and potentially pushing out other countries’ innovative companies, is not the right message.”