Gordian Knot of Nepalese Law on Ride-Sharing Services

The debate on the status of ride-sharing services as legal or illegal has come to an end now

The ride-sharing service has become a staple foundation of the gig economy in Nepal while the government has not been able to generate significant employment opportunities. This industry will become more technology-friendly, safe, and affordable with the entry of new international technologies and investments, in such cases foreign investment is very crucial to developing this sector.

There exists a symbiotic relationship between law and society. The inference of this statement can be derived from the point that either the law changes the society or society changes the law. Whilst, in the case of ride-sharing services, the legality of it was induced by societal pressure. In this case, it was society that changed the law. Ride-sharing companies like Pathao, and Indrive were elated and excited with the formal incorporation of ride-sharing services as a form of industry in Nepal. This can be ascertained with the formal registration of the Indrive company whilst, it was operated in the vacuum of law for 2 years. In the case of Pathao, it was registered as a tech company. Here I have outlined different legal provisions concerning the regulatory regime of ride-sharing service in Nepal.

a. Constitution of Nepal

Article 51 (h) (14) under policies relating to the basic needs of the citizens has stated the policy of the state to enhance investment in the transportation sector. Schedule 5 of the Constitution has mentioned the power of the federation regarding National Transportation Policies (No. 20) while Schedule 6 consists of the list of State Powers. It allows the State to regulate motor vehicle tax (No. 4) and management of transportation (No.20). Hereby, the transport management power is conferred to the state government as a devolution of power under the federal structure of government.

Thus, the constitutional norms do not restrict in adapting new technologies like ride-sharing services in the ambit of transport management. Rather, it has conferred power to the state government for the regulation of it.

b. Federal Legislative Provisions

i. Motor Vehicle and Transport Management Act, 2049 (1993)

This is old legislation that is still in existence and regulates the overall matters of motor vehicle and transportation systems in Nepal. It has classified different types of motor vehicles based on their purpose or utility. Section 12 states that "A motor vehicle that has been registered for any one purpose shall not be used for any other purpose." The purpose seems to restrict the use of private vehicles for pecuniary gains. This is a redundant provision as it was enacted in a different context especially when there was a unitary system of governance thus contravening the federal structure of governance.

ii.Foreign Investment and Technology Transfer Act (FITTA), 2075 (2019)

FITTA is the governing law for foreign investment and technology transfer in Nepal. Section 13(1) accords cent percent foreign investment without any ceiling. However, the provision under section 13(2) grants power to the government to fix the ceiling for equity investment in the service industry. While ride-sharing companies are often taken as transport technology companies, it is questionable to categorize these companies as complete service industries as technology is evolving into different forms of industry. The Schedule consists of negative lists of sectors for foreign investment. The recent ordinance relating to investment has listed the ride-sharing companies with more than 70% of equity invested by foreign investors under the negative list. While the IT sector is allowed for 100% equity investment by foreign investors, it sounds regressive that the maximum ceiling of FDI in ride-sharing services which is 70% neither complies with the allowed ceiling for IT sectors nor transportation sectors like the airline industry (80% maximum ceiling). This can be detrimental in case of alluring FDI from large companies like Uber and so on. Furthermore, ride-sharing companies can also be viewed from the point of technology transfer.

iii. Industrial Enterprises Act, 2076 (2020)

Section 17 (2) (g) has defined Information technology, communication technology, and information dissemination technology-based industry in a very narrow sense as it covers aspects like collection, processing, and dissemination of information under the ICT sectors. Section 17 (2) (h) states about service sectors. Ride-sharing service was included under the service industry under schedule-8 of the Act through the notice published in the gazette on Magh 18, 2080. The inclusion of ride-sharing services in the service industry officially legalized ride-sharing in Nepal. However, the ceiling made in reference to sec 13(2) of FITTA and the negative list provided by the ordinance seems to be too protectionist approach to this nascent industry. While the gig economy is increasing, IEA could have provided a new form of industry that is composed of both the technology and service sectors.

c. State Legislative provisions in Bagmati Province

As the constitution has provided state power to regulate transport management, the Bagmati State Assembly has enacted the State Vehicle and Transport Management Act 2078. The Act is more progressive as sec 13 (4) allows private vehicle owners to provide rides by charging certain fares along with insurance to the passenger. This was progressive legislation that impliedly legalized ride-sharing service in 2078, though IEA has formally recognized that service now as a part of the service industry. The latest legislation is in line with legislative intent. In our case, Motor Vehicle and Transport Management Act, 2049 contravenes the notion of federalism. Bagmati State is finalizing the process of regulating ride-sharing services which will provide a more regulatory framework for healthy competitive, transparent, and convenient ride-sharing services in the Bagmati region.

Conclusion

The debate on the status of ride-sharing services as legal or illegal has come to an end now. However, there has been contemplation for the enhancement of this sector in the purview of foreign investment. The regulatory aspects along with an infusion of technological enhancements in ride-sharing service in Nepal are only possible with foreign investment and technology transfer to this industry. The advent of Pathao hailed the new discourse of the ride-sharing industry in Nepal back in 2018. Similarly, the competitive market of ride-sharing services was excelled with the involvement of other domestic (Tootle) and international companies (Indrive) in ride-sharing services. The ride-sharing service has become a staple foundation of the gig economy in Nepal while the government has not been able to generate significant employment opportunities. This industry will become more technology-friendly, safe, and affordable with the entry of new international technologies and investments, in such cases foreign investment is very crucial to developing this sector. This sector has been a consequence of global developments in the ride-sharing industry, thus, fixing a ceiling for investment for such a technology-driven sector cannot incentivize foreign investors. It would rather deter aspiring investors. Hence, without analyzing full-fledged development and its impact on the national economy, the restrictive approach of foreign investment in this sector is regressive.