A legal challenge by Uber that would have seen its drivers exempt from paying GST has failed after a Federal Court ruling.

Key points: In August 2015, the ATO ruled Uber drivers must pay GST, like taxis

In August 2015, the ATO ruled Uber drivers must pay GST, like taxis However, the ride-booking company launched a legal challenge

However, the ride-booking company launched a legal challenge The decision will not affect consumers, a driver says

At a hearing in Sydney today, the court ruled Uber provided a "taxi service" and must pay the tax, thereby ending an 18-month legal battle.

Uber said it was disappointed by the decision but would not comment on whether it was considering an appeal.

"We are reviewing the decision and will provide our driver-partners with more information as soon as we can," a spokeswoman said.

In August 2015, the Australian Taxation Office (ATO) ruled Uber drivers must register for the GST even if they earn less than the small business threshold of $75,000 per year.

This meant drivers paid 10 per cent GST and a commission of about 25 per cent to Uber from the first dollar they earn.

Unlike small businesses, taxis must pay GST on every dollar they earn. Unlike taxis, Uber does not accept cash.

During the case Uber argued its drivers were not taxi drivers because they could not use taxi ranks or pick up passengers on the roadside.

A spokeswoman for the ATO welcomed the decision.

"It is important that Uber and other ride-sourcing providers now work co-operatively with us to help assist their drivers to understand and comply with their tax obligations and to claim their entitlements," she said.

Consumers the big losers, driver says

Uber responded to the 2015 ruling by lifting its prices by 10 per cent.

Because Uber drivers were treated as independent contractors, and not employees, they were responsible for their own tax arrangements.

Sydney-based Uber driver Mark Aliprandi, who has driven more than 13,000 trips for the company, said consumers were the ones affected.

"The consumer has missed out on a potential discount if Uber had won, so I guess the consumer loses in this case," he said.

"For drivers, it's not really going to change anything.

"Drivers who have not done their GST in the past 18 months, well I supposed the tax office could come after them."

New South Wales Taxi Council chief executive Roy Wakelin-King welcomed the ruling.

"A sensible decision has been made, and we're now on the same level playing field, which is a fair and pragmatic outcome," he said.

Associate Professor Sarah Kaine from the University of Technology Sydney School of Management said the decision meant more red tape and less money in the pockets of Uber drivers.

"Drivers already experience Uber changing the cut of what they take per ride unilaterally and without warning," she said.

"I think drivers will be concerned that this is another impost on them that they can't really afford."