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OP-ED: Bangladesh needs an effective e-commerce policy

  • Published at 06:33 pm July 12th, 2021
E-commerce_digitalization
Photo: Bigstock

Attention has been drawn to the fact that various internet based platforms are earning but not paying their taxes to the Bangladesh exchequer

Global online platforms are yet to gain permission for operating in Bangladesh, but a few are available that provide their services to Bangladesh consumers.

The local online shops are using different internet based platforms against payment.

Attention has been drawn to the fact that various internet based platforms are earning but not paying their taxes to the Bangladesh exchequer.

The High Court in early November 2020 ordered the authorities to collect revenue, including tax at source and other taxes on all sorts of transactions for advertisement, domain sale, licence and other fees, from internet-based platforms like Google, Yahoo, Facebook, YouTube and Amazon.

The court instructed the National Board of Revenue (NBR), Bangladesh Bank, Bangladesh Telecommunication Regulatory Commission and other agencies to collect revenues payable in the past as well from the tech firms. 

At the same time, American e-commerce giant Amazon and retail heavyweight Walmart are working out possibilities of enhancing their presence in Bangladesh.

At present, Google operates in 40 countries around the world, having set up 70 offices, while Amazon has offices in 17 countries.

Walmart already has a very big office in Dhaka for sourcing RMG and planning to start an outlet while Amazon is in talks with the government for entering into online business.

Chinese e-commerce giant Alibaba is already operating in Bangladesh through one regional e-commerce company Daraz.

Upon evaluation of the law and rule of Bangladesh, Walmart and Amazon find that the complex VAT registration and payment methods are deterrents.

The e-VAT registration is unfavourable for Amazon because a permanent local address is a mandatory requirement and they do not have any local office.

They want NBR to review all regulations/guidelines as well as papers prepared for VAT payments for these two companies.

Both of these companies do not want to pay taxes through existing procedures.

They prefer to make payments through any global bank, preferably by electronic fund transfer.

They want an intermediary global professional firm preferably, any one of the Big 4 largest accounting and audit firms PricewaterhouseCoopers, Deloitte Touche Tohmatsu, Ernst & Young, and KPMG with a strong presence in Bangladesh to solve VAT issues on their behalf.

Another major issue faced is the risk of double taxation.

When a buyer/customer in Bangladesh uses a credit card to make a purchase from Amazon or other similar vendors, the bank that the card belongs to, automatically deducts VAT from the transaction.

These two companies are not even informed of the deduction for adjustment of such advance deductions causing double taxation.

Both Google and Amazon want this kind of automatic VAT deduction to stop.

Instead, they want to make VAT payments through a banking intermediary in Bangladesh, facilitated by any of the globally reputed big 4 accounting companies.

These two companies are seriously watching how the government reacts to their proposals.

These accounting firms already contacted NBR to know Bangladesh's VAT structure and regulatory affairs.

This is a test case of the mentality of policy makers and bureaucratic system in Bangladesh.

Google and Amazon are now studying issues like how much tax they may have to pay, and the regulatory framework that they will have to follow if they set up offices here.

According to the new VAT law it is mandatory to use a Sales Data Controller if a company's turnover exceeds Tk5 crore.

It will also have to show purchase accounts while submitting returns.

But the tech giants are facing complications around both the issues since they use their own global platforms for accounts and make no purchase in Bangladesh.

An official of the consultancy firm has told a local daily newspaper that the international tech companies have two probabilities – one is to do business through deploying agents and completing the registration process and the other is to set up local offices to get a more permanent business outlook. 

Government may encourage FDI in single-brand retail under the automatic route.

It may also allow multi-brand retail but only with government approval and certain restrictions.

Following the experience of other countries, the rules should call for 50% of the total FDI money to be invested purely in the backend infrastructure.

There are clauses for mandatory local sourcing of goods and services.

Rules are relatively easier on the e-commerce front for the pure marketplace model.

The pure marketplace e-commerce company can only provide a platform for third party buyers and sellers to come together and trade goods.

It cannot buy, keep an inventory and sell the goods.

Basically, it means that an entity with FDI or a foreign company cannot do e-commerce business under the inventory based model.

An entity running an e-commerce marketplace shall not have control over inventory.

An e-Commerce company may try to control the market through sister companies.

They may control a vendor if more than 25% of the sales of such vendors are to the e-commerce entity or its sister companies.

The definition of a sister company is a company within an e-commerce company that has at least 25% voting equity stake.

The policy should restrict e-commerce entities from requiring merchants to sell goods exclusively on their platform.

Some of the e-commerce companies decide on their own to forward the order to some of their own ‘shell’ companies in order to maximize profit and have control over the market.

Lastly and most importantly, e-commerce companies should not allow the direct or indirect influencing the price of products sold on their website.

They should be allowed the online heavy discounting tactic, which may give a hard time to offline retailers.

Amazon usually offers Amazon FBA (Fulfilment by Amazon) service.

FBA basically provides the sellers an international platform to sell their products globally.

When a customer purchases a product, Amazon packages it and ships it to the customers.

They also undertake the after sales responsibilities.

It has been reported that Amazon has a plan to stock Bangladeshi products in their warehouse as well and give the new entrepreneurs an opportunity for business.

There are many manufacturers and garments industries in Bangladesh who are successful in the local market but unable to ship their products globally.

Amazon will give them the opportunity to list down their products on their site.

When a buyer from any country of the world purchases their product, Amazon will ship their products to the buyer from the manufacturer.

This way, Bangladeshi dealers or manufacturers will be benefited greatly.

First, they can sell the products globally.

Second, they sell them even if they are not producing the products personally.

And third, Amazon will handle returns and refunds so there is no extra trouble for that.

With small investments, SME entrepreneurs shall sell their products by using Amazon as an e-commerce platform.

Bangladeshi regulations should define inventory and market-place based e-commerce.

The government should amend the laws and rules to make doing the business easier.

At the same time, the authorities should prevent abnormal discounting, preferential treatment to some sellers, and predatory pricing to facilitate business for local SME entrepreneurs.

The global payment gateway should be overhauled to make transition easier for buyers in home and abroad.

Bangladesh is yet to have an effective e-commerce policy of investment, such as marketplace model and inventory based model.

Preference should be given to the marketplace model of e-commerce.

 

The author is a legal economist and can be reached at [email protected]

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