<CASE/Mobility Update> Developments for Ride-hailing in Japan

New regime to utilize private vehicles

1. Paid transportation by private vehicles

The Road Transport Act generally prohibits paid transportation by private vehicles (i.e., vehicles which are not used for business purposes), with exceptions granted in limited circumstances: (1) when urgently needed due to a disaster, (2) when municipalities or non-profit organizations registered by the MLIT, provide transportation for local residents, tourists, etc., and (3) when it is necessary to ensure public welfare, and permitted by the MLIT, to conduct transportation within specified regions or periods (Article 78 of the Road Transport Act).

The Guideline permits paid transportation by private vehicles under the aforementioned category “(3)” in cases of insufficient taxis in certain regions, times or periods. It is important to note that the new regime does not generally endorse ride-hailing in Japan, since the Private Vehicle Utilization Business presupposes that taxi business operators (as opposed to individuals) conduct the relevant transportation business and are responsible for managing and supervising non-professional drivers, and because it is limited to specific regions and times and a certain number of vehicles. Discussions regarding the legal framework generally allowing ride-hailing for business entities other than taxi business operators are slated to be held through June 2024, as outlined in the “Interim Summary of Digital Administrative and Fiscal Reform.”

2. Requirements for permission

In order to conduct the Private Vehicle Utilization Business, corporate taxi business operators are required to apply for permission to the competent transport bureau authority. Upon receiving the application, it will be examined to determine whether it meets the following requirements; if it is found to meet these requirements, permission will be granted.

Regarding (1) above, on March 13, 2024, the shortage of vehicles per day and time slot was disclosed for 4 regions: Tokyo’s 23 wards, Musashino City and Mitaka City; Keihin area (Yokohama City, Kawasaki City Yokosuka City, etc.); Nagoya area (Nagoya City, Seto City, Nisshin City, etc.); and Kyoto area (Kyoto City, Uji City, Nagaokakyo City, etc.) ※3. Additionally, it is anticipated that vehicle shortage data will be disclosed for the regions of Sapporo, Sendai, Saitama, Chiba, Osaka, Kobe, Hiroshima, and Fukuoka by April 2024, expanding the areas in which the Private Vehicle Utilization Business regime can be implemented.

Regarding (3) above, the requirement to “monitor the working hours in other occupations” for the Private Vehicle Drivers implies that they do not need to engage exclusively in transportation services using private vehicles. As detailed later, however, the permit conditions for the Private Vehicle Utilization Business include measures for preventing overwork, among other things, as part of operational management by taxi business operators. Therefore, taxi business operators are expected to manage the labor of the Private Vehicle Drivers appropriately, taking into account their working hours in other occupations. It is also notable that the Private Vehicle Drivers are supposed to become “employees” (as opposed to independent contractors) of taxi business operators.

3. Permission conditions

For the permission of the Private Vehicle Utilization Business, the following conditions are imposed, and the permission period is set to 2 years. Violation of these conditions inhering in the granted permission may result in administrative penalties such as suspension of business or revocation of permission.

These conditions not only require taxi business operators to apply the same management and supervision to the Private Vehicle Drivers as they do to their employed taxi drivers, but also necessitate additional management and measures due to the use of private vehicles. Taxi business operators are expected to design systems, including the establishment of organizational systems and development/introduction of relevant IT systems, to ensure adequate compliance with the permit conditions.

Furthermore, as per condition (4) above, the use of taxi hailing applications is anticipated in the Private Vehicle Utilization Business. Applicants for permission are required to specify the names of the applications used for hailing and fare calculation in their application forms.

Further developments

While the Private Vehicle Utilization Business was established under Article 78, Item 3 of the Road Transport Act, measures are being implemented and considered to improve the system of private paid passenger transportation under Article 78, Item 2 (“Private Paid Passenger Transportation”). Specifically, by the end of 2023, the following measures were taken or considered:

1. Providing guidelines for “transportation shortage areas” and incorporating the concept of “shortage by time slots” such as nighttime.
2. Clarifying that corporations can participate through subcontracting from the business operators of the Private Paid Passenger Transportation.
3. Encouraging shared vehicle utilization by accommodation facilities in tourist areas.
4. Setting the guideline for the “consideration” of the Private Paid Passenger Transportation at approximately 80% of equivalent taxi fares.

Additionally, measures such as the introduction of dynamic pricing and the establishment of cooperative mechanisms with taxis have been discussed.

It is expected that the use of private vehicles for paid passenger transportation will increase under both the Private Vehicle Utilization Business and the system of Private Paid Passenger Transportation. While there has already been a great deal of discussion regarding the legalization of ride-hailing businesses in Japan compared to other countries, there will be further consideration of the general legal framework for non-taxi ride-hailing business operators through June 2024. Therefore, it is essential to continue monitoring the progress and direction of, and legislative developments issuing from, these discussions.