Ride-hailing services are now popular in all international cities. They are popular because they are convenient, and as part of the “shared economy”, they help improve the utilization of scarce resources. They also offer additional opportunities for work and foster the spirit of self-reliance.

I applaud the Hong Kong Special Administrative Region government’s recently announced initiative to develop a regulatory framework for ride-hailing services that will complement existing taxi services.

Two key questions about the regulatory framework are: How to ensure fairness, given taxis need medallions, which have cost millions of Hong Kong dollars; and how many licenses to be issued. Taxi operators rightfully demand that ride-hailing services should pay license fees that amount to similar costs over the long term.

There is little controversy or difficulty over that part of the regulatory framework pertaining to safety and protection of the rights of users and feedback about user satisfaction. We should do all that is necessary and avoid imposing unnecessary and costly requirements.

There is also little controversy about the necessity to avoid overburdening our road system. However, instead of limiting the number of vehicle licenses for ride-hailing services, we should impose a tax on the incomes from ride-hailing services, instead of a fixed license fee. To avoid excessive road congestion, we should also make adjustments to this tax upward or downward as necessary.

The problem with setting a fixed number of licenses for cars designated for ride-hailing services is that this is incompatible with the nature of a “shared economy”. Under the concept of a shared economy, owners of cars can use their cars to serve the needs of customers when they have free time. Indeed, according to Uber, over 60 percent of their drivers work fewer than 20 hours per week. If the licenses for cars used for car-hailing services are limited, competitive bidding would render the cost unaffordable for part-time operators. This problem will be further exacerbated under the government’s proposal that the cars at the time of application for ride-hailing licenses must be no older than 7 years. With only a limited number of operators, it is unlikely that users of the services can successfully book a car within a short time. Should people give up trying to book a car, the car-hailing service platforms may exit from Hong Kong, and we will be back to square one.

I am all for removing any limit to the number of vehicles that can be used for ride-hailing services. These vehicles must be certified roadworthy and equipped according to the rules

The SAR government has designed a “taxi fleet system” to put pressure on taxis to improve their services. These fleet taxis can provide services to people who book online and pick up passengers like regular taxis. SynCab is the first platform that offers taxi fleet services. A reporter from online media outlet HK01 booked a SynCab from the container terminal to D2 Place in Lai Chi Kok. Notwithstanding a higher cost (30 percent higher) compared to another ride-hailing platform, the reporter waited six minutes and was then advised that the platform was unable to arrange a car and had to cancel the order. A SynCab driver told Ming Pao Daily he had fewer than 10 orders from online booking a day. If the drivers in ride-hailing services are not allowed to pick up passengers on the roads, they probably will not have sufficient income to survive.

My proposal follows the logic of a shared economy. To start with, the SAR government can obtain data from Uber and estimate how much revenue is derived on average each day, assuming a vehicle is on the road serving similar hours as a taxi. Assume that the government imposes a 10 percent tax on the incomes in lieu of the license fees. Work out the present value of the incomes projected in perpetuity. Compare this present value with the current value of a taxi license. If it is bigger, reduce the tax level to the level that roughly matches the value of a taxi license. If it is smaller, raise it.

After the tax percentage is derived, the government will simply levy this tax rate on all vehicles that are proved safe and carry the necessary equipment. All these vehicles will be given the license to operate and will offer ride-hailing services. If they are not allowed to pick up passengers on roads while taxis can, it may be justified for the levy to be lower than what was proposed above.

Similarly, insurance premiums can also be charged as a percentage of revenues derived. In principle, they should align with the hours of operation rather than the revenues. However, if an insurance company has a good idea of the relationship between the revenues and the hours of operation for a platform, and the safety record and experience of a driver, the insurance premium “tax” can be tailor-made for each driver who offers ride-hailing services.

In summary, I am all for removing any limit to the number of vehicles that can be used for ride-hailing services. These vehicles must be certified roadworthy and equipped according to the rules. They cannot pick up passengers from roads. They are not like taxis that keep cruising on the roads and thus cause as much congestion as taxis. It is entirely possible that someone who has the license to operate a ride-hailing vehicle and has access to a vehicle that has been certified to be used for these services need not be on the road when he takes orders. The dependability of ride-hailing services is largely contingent upon maintaining an adequate supply of qualified drivers and certified vehicles.

The author is an honorary research fellow at Pan Sutong Shanghai-Hong Kong Economic Policy Research Institute, Lingnan University, and an adjunct professor at the Academy for Applied Policy Studies and Education Futures, the Education University of Hong Kong.

The views do not necessarily reflect those of China Daily.