Why should the government focus its policies on the local e-commerce sector?
If you look at the e-commerce industry in Bangladesh which started over a decade ago, it has grown tremendously especially in the last few years mainly due to the acceleration in the adoption of technology. .
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 business sites.
However, only about 3-4% of the country’s total population has been exploited so far, people who currently rely on online shopping. In contrast, other similar countries have at least a quarter of their population dependent on e-commerce based purchases.
If given the necessary support to grow now, the country’s e-commerce sector has the potential to generate huge returns in terms of revenue in the days to come.
Not only that, but the e-commerce sector is responsible for incubating an entire ecosystem that creates jobs and contributes significantly to the socio-economic development of the nation.
We must also take into account that the e-commerce sector is also a good way to access the global market through cross-border e-commerce while helping local small and medium-sized enterprises (SMEs) to market their products beyond borders. The e-commerce sector is also deeply connected to women entrepreneurs in our country.
In recent years, Bangladesh’s e-commerce has grown rapidly, with women entrepreneurs increasingly starting their small and medium-sized enterprises (SMEs) online.
Bangladesh is currently believed to have 2,500 e-commerce sites and a large number of unofficial online shops run by women selling items worth more than $2 billion, making it the 46th country in terms of sales. of e-commerce in the world.
The industry has seen at least 100,000 new entrepreneurs join the online marketplace, and 98% of all e-commerce sellers have played by the rules. We estimate that the valuation of the sector in 2021 could have exceeded Tk 20,000 crore, or around $2.32 billion. By 2023, the market is expected to reach a size of $3 billion.
What is the current scenario of the local e-commerce industry? How can things get even better?
The market has adapted and grown but needs to pick up the pace. Consumers continue to embrace new ways to shop and buy online 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 live to its full potential.
For much of the past year, current eCAB members have worked with entrepreneurs, consumers and government to protect both consumers and businesses in the sector. Several initiatives have been designed and executed, and many more are underway. We even introduce an SOP and other policies and guidelines whose progress should be monitored and modified whenever the need arises.
We also need to understand the importance of automation in regulating and operating the sector, as it is itself a product of technology. The government has provided tremendous support to the sector to accommodate its growth and ensure a sustainable ecosystem, and we need it even more to support the great ecosystem that has integrated the gig economy into the local market.
We must also use infrastructure development projects and further develop logistics solutions to harness the real potential of the sector, helping the rural economy to enter the formal economy.
Companies in the sector also face obstacles in terms of withholding tax and double taxation in certain cases that require government support. In addition to this, higher tax rate compared to neighboring countries is a hindrance to the flourishing e-commerce sector which has hardly made any profit due to market growth as it affects product pricing and sustainability of a business.
Last but not least, we need a legal framework for the e-commerce sector.
What are eCAB’s expectations from the upcoming national budget for the financial year 2022-23?
We are planning a reduction in VAT in the next budget as well as the abolition of the minimum turnover tax. The VAT imposed on takeaway food for online and app-based food delivery services is to be reduced from 15% to 5%.
The VAT imposed on the rent of offices, warehouses, distribution centers and sorting houses must also disappear. Additionally, we expect the government to further clarify the distinction between online and offline shops under the VAT law as per the Digital Commerce Standard Operating Procedure 2021.
The current law imposes a minimum tax rate of 0.6% on the gross receipts of all businesses, except telecommunications and cigarette companies, in the form of a subjective or specific minimum tax rate to industry. We want the government to bring it down to zero percent for the e-commerce sector in the next budget.
We have also made proposals to NBR for a special tax exclusion of the e-commerce sector at source in the next budget.
The government may double the withholding tax on export earnings. How will this affect the e-commerce industry and cross-border e-commerce?
Again, the e-commerce industry is not yet profitable, and we need help removing the barriers that come with current tax structures. Tax and VAT are imposed in online marketplaces across multiple segments, which already makes offline products cheaper than online products.
A consumer already has to pay Tk 50 VAT on purchases, another Tk 15 VAT on delivery costs for a purchase of Tk 1,000. Yet another Tk30-40 tax deduction [TDS] is incurred at source which is higher than neighboring countries which pay around Tk 20-30 as TDS. This is why we have proposed a special tax exclusion for the e-commerce sector at source in the next budget.
What kind of tax structure is expected for cross-border e-commerce to thrive?
It would be essential to ensure that such a growing sector, with all its unique market barriers, has a policy and regulatory framework that sustains businesses.
If our proposals are implemented, that should be enough to help cross-border e-commerce thrive by helping to keep product pricing and cost of doing business sustainable for entrepreneurs.
We believe that further growth of the e-commerce sector is needed to reach the doorsteps of the people of digital Bangladesh, so we have increased our requirements by formulating an e-commerce friendly tax structure in the budget.
We also expect that companies will not be harassed in the name of collecting revenue from public officials. Some VAT registered businesses are fined Tk 10,000 for not submitting monthly returns, while some businesses fail to make a profit of Tk 10,000 per month.
In this regard, we have also proposed the automation of the submission process.