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Budget Analysis: What It Means By 4% VAT On Online Trading

[su_note note_color="#fffffd" text_color="#6ba6ed"]Editor's Note: This is first of a ten parts series we are running on National Budget 2015-16. Thank you SmartKompare for teaming up with us and supporting the series. Visit SmartKompare and choose the best personal loans for you.[/su_note]

A 4% VAT was proposed on the trading of online goods and services in the budget for the fiscal year 2015-2016. If implemented, it will thwart the growth and further development of the sector as warned by the industry experts.

There is already an outcry from various stakeholders of the sector against the proposed vat. Bangladesh Association of Software and Information Services (BASIS) E-commerce Alliance vehemently criticized government decision to add 4% Vat on online shopping in a press conference held recently. The forum expressed deep concern over imposing 4% vat on this nascent sector and proposed tax holiday at least for 4/5 years for the sector to promote the growth.

Looking Beyond

Proposed VAT on ecommerce sector is at best myopic. Below are few reasons why we think a 4% Vat on ecommerce is a decision that will ultimately do more harm than good:

E-commerce is a nascent industry. It is yet to turn into a profit making sector. Fahim Mashroor of BDjobs rightly pointed out: “most of the business owners and entrepreneurs are young in age and are the first generation entrepreneurs. These people are passionate about doing new things and investing from their own pockets to build businesses.” Top of that, infrastructural for the sector is far from favorable and not at all supportive to the growth of the sector. Success stories in the sector are rare and the few success stories that we have are the stories of extraordinary fights against hardship all the ways. When the sector is struggling to survive and only seeing a modest growth this VAT will make it difficult for the sector to grow.

Ecommerce will add more value in the long run than a few bucks of revenue. Fahim Mashroor of BDjobs said: “Adding a 4% VAT on this will only create extra 3-4 Crore taka revenue for the Government. On the other hand, this sector will create many scopes for employment and few lacs of entrepreneurs given that the sector does not meet obstacles. VAT will be a huge setback sector.”

Ecommerce is ultimate business of gentlemen. In Bangladesh all businesses do unethical practices to some extent. In ecommerce it is almost impossible. E-commerce sites save their transaction details in a digitalized way. Every selling or payment can be tracked. There is clarity and fairness in the business which will benefit every stakeholder. Promoting ecommerce and giving them some extra advantages will, at end, bring more benefits for the government.

We are not the only country where ecommerce is going through an early stage. There are countries that are seeing extraordinary growth of ecommerce sector but very few countries took such measures. Even in the country like USA where e-commerce reached at a great feat the sector still enjoys tax facilities.

The decision itself is against the very vision of digital Bangladesh. It can’t be denied that to build a Digital Bangladesh digital commerce and digital payment are must. If there are more transactions via online there will be more transparency in the business. We have seen in the last few years how banking sectors went through a big development and it became possible for the digitalization of banking and easier mobile banking.

An idea for killing ecommerce. Online shopping in Bangladesh is yet to become a common thing. The transactions are very insignificant compare to the old fashioned shopping. If 4% taxes are added to purchase it will further discourage people from buying online ultimately killing the sector and the growth potential it has.

Sabidin Ibrahim works as an Editorial Assistant at FS. He is passionate about media, communications and public relations. He loves poetry, obsesses with philosophy, and loves to learn new things.

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