The value added tax (VAT) proposed in the budget for 2019-20 on online shopping comes into effect from today, albeit at a reduced rate and under a new calculation.
Amidst the e-commerce industry’s outcry and campaigns, the rate has been reduced to 5 percent from 7.5 percent, the e-Commerce Association of Bangladesh (e-CAB) said in a statement yesterday.
However, the taxes proposed on telecom services has remained unchanged, according to the statement.
The VAT on online shopping will be calculated based on the difference between what a company pays for a product and sells it for, it said. For instance, if a company buys a product for Tk 100 and sells it at Tk 110, the 5 percent will be calculated on the Tk 10 difference, meaning the VAT will be Tk 0.5.
Terming the rate reduction an achievement of theirs, Abdul Wahed Tomal, the e-CAB general secretary, expressed discontent with the calculation process.
He cited an example of most companies selling products below cost prices in an effort to attract customers, asking how the VAT would be calculated then.
“We continue to raise our demand for full withdrawal of the VAT from digital commerce for at least the next five years for the sake of digitalisation of the country’s business process,” Tomal told The Daily Star. The e-CAB will move again with the support of different ministers for the withdrawal, he said. Commerce Minister Tipu Munshi and State Minister for ICT Zunaid Ahmed Palak have already supported the demand.
The government had twice tried to impose the VAT, proposing 4 percent in the 2015-16 budget and 5 percent in 2018-19, but backed down amidst opposition from entrepreneurs.
Industry insiders said this segment of business had just started to grow with annual sales still hovering below Tk 1,000 crore and this growth would come to a halt if the government withdrew its active support.
Finance Minister AHM Mustafa Kamal in his budget speech proposed increasing the supplementary duty on all services availed through mobile phones to 10 percent from 5 percent. This came into effect on the day of the budget announcement.
Mobile operators estimate that customers would end up paying an additional Tk 1,300 crore every year for the duty hike. The budget also proposed raising SIM tax to Tk 200 from Tk 100, which mobile operators say would turn out to be a hindrance to growth.
The increase in minimum tax on overall turnover to 2 percent from existing 0.75 percent for mobile companies was another blow, they added.