E-commerce marketplaces, the business of which rapidly grew amid the Covid-19 pandemic by putting sellers and buyers in touch as lockdowns crippled day-to-day life, will likely be free from VAT liabilities on sales in the upcoming FY2023-24.
With the move, the government aims to increase foreign direct investment (FDIs) and reduce barriers to the
businesses’ operations, according to sources.
In the national budget for FY24, the government is likely to incorporate a provision including classifications or specifications of online marketplaces and retail businesses and removing VAT liability on digital commerce, said Finance Ministry officials involved in the budget preparation.
Besides, they said, online marketplace companies will pay VAT on the services they provide as per the incumbent rules and VAT will only be applicable if they sell goods or services.
Welcoming the initiative, experts said it will create an opportunity to reduce the harassment of taxpayers and encourage investments in the sector. They added that there is an existing necessity to withdraw the VAT or reduce it from 15 per cent to 5 per cent on delivery charges.
Earlier on different occasions, e-commerce marketplace owners had demanded and put forward proposals to the National Board of Revenue (NBR) to incorporate this provision in the budget.
They said that the lack of classification for these online marketplaces is creating barriers for the businesses, discouraging foreign and local investments, and hampering their business operations as their activities are being considered retail businesses.
They have been demanding the elimination of VAT inequality between e-commerce marketplaces and conventional businesses.
Bangladesh’s e-commerce sector has grown very fast over the past two and a half years and currently has huge potential for both local and global investors.
The e-commerce market size was Tk 22,000 crore in FY2021-22, registering a 25 per cent annual growth on average, according to the e-Commerce Association of Bangladesh (e-CAB).
The country has also witnessed rapid growth in e-commerce transactions, with the amount reaching Tk 16,000 crore at the end of 2021, according to e-CAB, which predicts the market size will reach Tk 30,000 crore at the end of 2030.
A major barrier
Currently, online marketplaces are responsible to take VAT liabilities on every digital sale made through their sites although they are not directly selling the goods and services. NBR officials sometimes even ordered them to show 6.3 VAT challan for every sale in the past two-three years.
The incumbent rules and regulations are hindering operations of the digital businesses, leading to a sharp drop in sales and shrinking investments in digital marketplaces. This is a barrier to the e-commerce sector’s growth, said the Finance Ministry officials.
Fahim Mashroor, CEO and co-founder of both Bdjobs.com and AjkerDeal.com, told The Business Post, “Right now, there is no difference between conventional businesses and online marketplaces in terms of VAT provision but there is a huge difference.”
“These e-commerce marketplaces help create a relationship between sellers and buyers through their platforms, but they are being made to take the VAT liabilities on sales. If the government includes this provision in the budget and removes the liability, it will help significantly boost the sector,” he said.
“However, there is a 15 per cent VAT on delivery charge, which is making delivery costly and putting consumers under more strain. There are a large number of buyers who live outside Dhaka and they are paying around Tk 150-200 extra as delivery charge for buying goods worth Tk 1,000,” he added.
He opined, “This VAT should be withdrawn or at least brought down to 5 per cent to reduce consumers’ burden amidst the rising inflation, popularise online sales and boost digitalisation.”