The e-Commerce Association of Bangladesh (e-CAB) has demanded the removal of value-added tax (VAT) imposed on the rent of an organization’s office, warehouse, fulfillment centre, and sorting houses.
During a pre-budget discussion session with the National Board of Revenue (NBR) on Wednesday, the association also demanded lowering the VAT on takeaways for online and app-based food delivery services to 5%, which is currently 15%, as well as reducing the online-offline taxation gap through clear distinction.
The association also pointed out that the distinction in sales through retail business and online marketplaces under the VAT law needs further clarification in line with the Digital Commerce Standard Operating Procedure 2021.
Speaking to Dhaka Tribune, e-CAB Vice-President Mohammad Sahab Uddin explained that there is a minimum limit for Gross Receipts in the case of a subjective-minimum tax rate, which is industry-specific.
According to section 42C of the Finance Act, 2016 (44), a minimum tax rate of 0.6% of Gross Receipts is imposed on all companies except telecom and cigarette companies.
However, the association proposed it to be declined to zero percent.
“Since the e-commerce sector is not yet profitable, we have made the proposal to facilitate further growth of the sector,” Shahab said.
“The businesses of the sector also face barriers in regards to source tax and double taxation in some cases. We want to help the government in collecting revenue without disrupting the sector’s growth,” said Shami Kaiser, president of e-Cab.
Industry insiders and stakeholders alike say, a higher tax rate in contrast to neighbouring countries is a barrier to the thriving e-commerce sector, which affects the pricing of products and a business's sustainability.
According to AKM Fahim Mashroor, chief executive officer of online shopping site AjkerDeal, offline products uniquely turn out to be less costly than online products, as tax and VAT are imposed on online marketplaces over several segments.
In the pre-budget discussion session, he pointed out, on a Tk1,000 purchase, a consumer pays Tk50 VAT on shopping, Tk15 VAT on delivery charge, and another Tk30-40 tax deduction at source [TDS], which is Tk20-30 in neighbouring countries.
In that regard, the association proposed tax exclusion of the e-commerce sector at source in the upcoming budget.
According to e-CAB, the sector saw at least 1 lakh new entrepreneurs joining the online market, and 98% of all the e-commerce sellers have been playing by the book.
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 presently has 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, according to news reports.
Furthermore, according to the Industrial Development Leasing Company of Bangladesh Limited's monthly business assessment (2019), Facebook is used by more than 300,000 Bangladeshi retailers.
Women own more than 50% of these businesses.
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.
According to e-CAB official reports and industry insiders, online sales rose about 70% in 2020 from the previous year, and the market size of the industry stood at nearly $2 billion as of August that year.
Sahab Uddin estimates 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.
“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,” Zubair Siddiky, co-Founder and managing director of foodpanda Bangladesh told Dhaka Tribune.
Finance Secretary of e-Cab Mohammad Abdul Haque said: “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 budget.”
It was also pointed out that 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.
“Attention has also been drawn to ensure that no member of the e-cab is harassed by the revenue collecting officials in the name of collecting VAT and tax,” said the e-CAB secretary, citing the association’s proposal of automating the VAT collection process.
