Why should the government focus its policies based on the local e-commerce sector?
If you look at the Bangladeshi e-commerce sector that started over a decade ago, it has been gaining tremendous momentum, especially over the last few years, mostly because of accelerating technology adoption.
Bangladesh's internet business scene has been revolutionized by Facebook and other social media platforms. In the country, the social networking platform has 30 million members and 50,000 company sites.
However, only about 3-4% of the country’s total population has been tapped so far, people who currently depend on online purchases. In contrast, other similar countries have at least a quarter of their population dependent on e-commerce based shopping.
If provided with the required support to grow now, the country's e-commerce sector has the potential to provide huge returns in terms of revenue in the coming days.
Not only that, but the e-commerce sector is responsible for incubating a whole ecosystem that creates jobs and contributes significantly to the socio-economic development of the nation.
We also need to consider the fact that the e-commerce sector is also a good way to tap into the global market through cross border e-commerce while helping the local small and medium entrepreneurs (SMEs) to market their products beyond the borders. The e-commerce sector is also deeply connected to the women entrepreneurs of our country.
For the past few years, Bangladesh's e-commerce business expanded rapidly, with women entrepreneurs increasingly starting their online-based small and medium enterprises (SMEs).
Bangladesh has been reported to currently have 2,500 e-commerce sites and a huge number of unofficial online shops run by women selling items worth over $2 billion, making it the 46th largest country in terms of e-commerce sales globally.
The sector saw at least 100,000 new entrepreneurs joining the online market, and 98% of all the e-commerce sellers have been playing by the book. We estimate that the valuation of the sector in 2021 might have crossed Tk20,000 crore — about $2.32 billion. By 2023, the market is predicted to reach a size of $3 billion.
What is the current scenario of the local e-commerce sector? How can things improve further?
The market has been adapting and growing but needs to pick up the pace. Consumers have been continuing to embrace new ways of online shopping and purchases in an ever-expanding digital world. People even buy perishables such as groceries online.
Now, more than ever, we need to build a sustainable e-commerce ecosystem through focused efforts to help the sector grow and to live to its fullest potential.
For most of last year, the current eCAB members have worked together with entrepreneurs, consumers as well as the government to protect both consumers and businesses in the sector. Several initiatives have been designed and executed, with many others on the way. We even introduce an SOP and other policies and guidelines whose progress needs to be monitored and changed whenever the need arises.
We also need to understand the importance of automation in regulating and operating the sector, as it itself is a product of technology. The government has been supporting the sector immensely to cater to its growth and ensure a sustainable ecosystem, and we need it even more to sustain the tremendous ecosystem that has integrated the gig economy into the local market.
We also need to utilize the infrastructure development projects and further develop logistic solutions to harness the real potential of the sector- helping the rural economy to enter the formal one.
The businesses of the sector also face barriers in regards to source tax and double taxation in some cases that require government support. On top of that, a higher tax rate in contrast to neighbouring countries is a barrier to the thriving e-commerce sector that has hardly seen profit because of catering to market growth as it affects the pricing of products and a business's sustainability.
Last, but not least, we need a legal framework for the e-commerce sector.
What are the expectations of eCAB from the upcoming national budget for FY 2022-23?
We expect VAT to be lowered in the upcoming budget as well as the withdrawal of minimum tax on turnover. VAT imposed on takeaways for online and app-based food delivery services needs to be brought down to 5% from 15%.
The VAT imposed on the rent of offices, warehouses, fulfillment centers, and sorting houses needs to go as well. Moreover, we expect the government to further clarify the distinction between online and offline shops under the VAT law in line with the Digital Commerce Standard Operating Procedure 2021.
The current law imposes a minimum tax rate of 0.6% on gross receipts on all companies except telecom and cigarette companies, in the form of a subjective-minimum tax rate or being industry-specific. We want the government to decline it to zero percent for the e-commerce sector in the upcoming budget.
We also made proposals to NBR for special tax exclusion of the e-commerce sector at source in the upcoming budget.
There is a possibility that the government may double the source tax on export earnings. How will that affect the e-commerce sector and cross border e-commerce?
Again, the e-commerce sector is not yet profitable and we need support in removing barriers that come with the current tax structures. Tax and VAT are imposed on online marketplaces over several segments already making offline products cheaper than online products.
A consumer already has to pay Tk50 VAT on shopping, another Tk15 VAT on delivery charge on a purchase of Tk1000. Yet another Tk30-40 tax deduction [TDS] is incurred at source, which is higher than neighbouring countries that pay around Tk20-30 as TDS. That is why we proposed a special tax exclusion of the e-commerce sector at source in the upcoming budget.
What kind of tax structure is expected for cross border e-commerce to flourish?
It would be essential to ensure that such a growing sector, with all its barriers that are unique to the market, has a policy-regulation framework that ensures the sustenance of the businesses.
If our proposals are implemented, that should be enough to help cross border e-commerce to flourish by helping maintain sustainable product pricing and the cost of doing business for entrepreneurs.
We believe that further growth of the e-commerce sector is required to reach the doorsteps of the people of Digital Bangladesh, so we have raised our demands in formulating an e-commerce friendly tax structure in the budget.
We also expect that businesses are not harassed in the name of revenue collection from officials. Some VAT registered companies are fined Tk10,000 for non-submission of monthly returns, while some businesses do not make a profit of Tk10,000 per month.
In that regard, we have also proposed automation in the submission process.