The government is taking serious measures to collect value-added tax (VAT) on payments for advertisements published or services taken from digital and social media platforms, for which local companies spend around Tk 1,100 crore a year.
On Sunday, the Bangladesh Bank asked all banks to be strict on the payment procedure and deduct 15 percent VAT on overseas payments for online purchases and adverts on digital platforms.
It came just days after a unit of the Criminal Investigation Department specialising in money laundering launched a massive investigation into payments made by local digital companies for adverts on social media sites, especially Facebook, to check whether money is being laundered.
The agency has already summoned top 10 e-commerce platforms and plan to call mobile phone operators and other digital companies.
Last week, Telecom and ICT Minister Mustafa Jabbar also asked Facebook to set up office in Dhaka and pay taxes.
The latest move from the Banking Regulations and Policy Department of the central bank came following a request from the National Board of Revenue (NBR) on deducting VAT on payments for internet services, adverts on digital platforms and other related services received from abroad.
A similar instruction was given by the NBR in May 2018, but it found that some banks are not deducting the tax while clearing the payment, according to a letter of the tax administration sent to the BB on January 22.
Abdul Wahed Tomal, general secretary of the e-Commerce Association of Bangladesh (e-CAB), said the move would increase the cost of doing business and create new challenges for its members as most of them are new.
Entrepreneurs sometimes pay the social media platforms to highlight topics related to their business and give a boost to their sites, he said.
The recent move might force entrepreneurs to explore other avenues to give the boost, he said. “So, the government should try so that Facebook and Google set up offices and open accounts in Bangladesh as early as possible,” Tomal added.
However, Mahmudul Hasan Sohag, chairman of OnnoRokom Group of Companies, said the VAT is not new but this time the NBR and the central bank are showing toughness to implement it and made banks liable to deduct it.
“We were never exempted from paying the VAT. But previously it was not banks' responsibility; rather advertisers were liable to pay the VAT and maybe there are some deviations here,” said the entrepreneur, who leads online book-seller rokomari.com.
He, however, said the move would not increase any cost for the compliant companies.
The tax authorities also cannot detect many services clients receive online, industry insiders said.
Most multinational companies, including mobile phone operators, fast-moving consumer goods companies, ride-sharing and e-commerce platforms and other digital service companies spend hugely on the adverts.
The spending is increasing rapidly and some digital agencies have already sprung up to take care of this business segment.
Speaking on the issue, the ICT minister said the government has suggested the NBR be strict on imposing taxes, including VAT.
“We are trying so that all the social media channels set up office in the country and the process is moving very fast. If Facebook and other companies set up offices in Dhaka, it will be a different ball game.”
Jabbar said some startups might be affected by the latest move as large firms are already following due procedures.
Facebook did not reply to email queries of this correspondent.