How wise is it to slap VAT on e-commerce?

The scenario of the proposed VAT on e-commerce businesses is somewhat similar to a travesty regarding our visions. On one hand, we are conceptualising the 'Digital Bangladesh' dream, whereas, on the other hand, we are not being able to dodge the dilemma of accepting the bigoted reality. Yes, I am talking about the 7.5% VAT thrusted upon e-commerce entrepreneurs.

While we were dazed by the audacious budget proposed, e-commerce businesses have been ascribed under 'Social Media and Virtual Businesses'. By definition, any kind of sales transactions made by usage of electronic media, through the internet, by means of social media or mobile applications, belongs to this category.

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Online shopping getting costlier for VAT slap

"Does the ideology of creating 5,000 e-commerce entrepreneurs and the 7.5% VAT not controvert? The vision was to incite more young e-commerce entrepreneurs to work towards innovative goals that would impact the economy, but it looks like we will just regress backwards if this is the case", states Fahim Mashroor, ex-President of BASIS.

At the beginning of this year, we learned that commerce ministry took up a plan to train up about 5,000 e-commerce entrepreneurs. Furthermore, global reports clearly state that 70% of the businesses across the globe would be conducted online by 2025. So, does the idea of the digital revolution and creating more youth entrepreneurs to construct a Digital Bangladesh not contradict the reality of a 7.5% VAT imposed on e-commerce businesses?

To the proposed 7.5 per cent VAT imposition, Didarul Alam, director of BASIS says: "Imposition of such an amount of VAT will reduce the growth rate, and act as a restraint for e-commerce entrepreneurs to promote employability."

Just a few weeks back we were awestruck by the news of our e-commerce startups going big. Deligram, an e-commerce startup raised US $2 Million in series A investment. Just before Eid, we came across the piece of news that local e-commerce platform, Sindabad.com has received $4.15 million from Aavishkaar Frontier Fund (AFF), a venture fund managed by Aavishkaar, a leading Asian impact investment company.

"In such a price sensitive consumer market like Bangladesh where retail margins are in the single digits, adding a 7.5% VAT will create undue competitive pressure for the e-commerce players. They will fail to scale properly and ultimately be forced to close shop", said Md Saimum Hossain, CFA, Assistant Professor, Department of Finance, University of Dhaka.

In a country where entrepreneurial spirit is rising amongst the millennials and gen-z individuals, we can't afford to lose out on innovative opportunities, which is clearly being intercepted through the proposed VAT on e-commerce enterprises. We are visioning to transform into an upper middle-income country, yet we can't dare to create sustainable opportunities tackling inequality, and boosting employability.

"It's exciting to see that the government is prioritizing startups, but to be honest, as consumers are not ready yet. A 7.5% VAT on virtual businesses will make more difficult for us to operate. We would request for zero VAT till 2024, so that we could add direct impact on GDP like RMG sector", mentioned Adnan Imtiaz Halim, Cheif Executive Officer of Sheba.xyz.

To those who believe that the imposition of a 7.5% VAT is not immoderate, would you pluck up the courage to start a new e-commerce business, knowing that a few giants are already steering the industry? Do you not think that this will inflict a pessimistic impact on e-commerce entrepreneurs? I hope that the government perceives what they would be missing out on, if such a heavy VAT is imposed in this regard.

Tajdin Hassan is the Head of Marketing at The Daily Star