The fast-growing digital economy in Bangladesh should be under tax purview for the sake of the government's resource mobilisation, while it will also be important to analyse the cost and benefits of taxing or not taxing the digital businesses, said the Centre for Policy Dialogue (CPD).
At a dialogue – "Taxing the Digital Economy: Trade-offs and Opportunities" – jointly organised with the European Union (EU), the think tank called for bringing the tech giants like Google, Facebook and YouTube under the local tax purview through the next Finance Act.
Local entrepreneurs urged for fairness in taxing the digital economy while CPD suggested that there should be transparent and well-thought tax incentives based on the development status and maturity of a specific sector, rationale for the protections or exemptions.
For instance, the nascent sectors and home-grown small businesses emerging in the digital arena – e-commerce or IT enabled services (ITES) – are paying some value added taxes, a minimum tax on turnover, alongside taking all the hassles of too many tax reporting with the tax authority despite the announced tax exemptions, industry representatives said in the dialogue held in the capital's Bangabandhu International Conference Centre yesterday.
Non-resident giants dominating the digital economy should come under the local tax jurisdiction, just like they were brought under VAT compliance a few years back. – CPD Distinguished Fellow Professor Mustafizur Rahman
Small firms suffer a lot due to the complexities as they don't have resources to deploy for such frequent compliances like monthly reporting of VAT files, yearly renewal of no income tax requirement even if their income was tax exempted, said local entrepreneurs and added that process simplification, complete automation of tax-VAT, and a level playing field for all businesses would be needed.
On the other hand, global tech giants like Google, Facebook, and YouTube are yet to have any office in Dhaka or any tax registration with the National Board Authorities (NBR).
CPD Distinguished Fellow Professor Mustafizur Rahman in his keynote suggested actions through the upcoming Finance Act so that the non-resident giants dominating the digital economy come under the local tax jurisdiction, just like they were brought under the VAT compliances a few years back.
However, the tech giants' local clients are now paying double VAT if they intend to make the foreign currency payments officially as the banks again impose 15% VAT on their already VAT-included bills to be paid in foreign currencies.
More importantly, multinational firms here rarely pay the internet giants from Bangladesh against the ads they run on the internet platforms; they don't face the double taxation problem or any taxation at all as their parent firms do it mostly from tax havens, Mustafizur Rahman cited the industry representatives.
The disparity leaves compliant smaller local players into an even weaker state and that is why too many small online businesses use unauthorised services to pay from abroad against their internet ads and boosting.
And the NBR was yet to track the turnover even as proved through the difference between the data provided by the telecom regulator and the NBR estimate, while speakers said coordination among government authorities could significantly reduce the problems of no information or misinformation.
For example, over 1.7 lakh firms were registered with the Registrar of Joint Stock Companies, a wide majority of them used to escape tax return submission and the IT integration between the two authorities significantly raised the number of return submissions.
Echoing other businessmen, Federation of Bangladesh Chambers of Commerce & Industries (FBCCI) Senior Vice-President Mostofa Azad Chowdhury Babu stressed the need for reforms within the NBR to help reach its target of expanding the tax net.
Professor Mustafizur Rahman while presenting other countries' experiences in taxing the digital economy said India in the last decade eased the processes, even brought their freelancers under tax, while e-commerce, IT and ITES industries are paying gigantic revenue to the government there.
The International Business Forum of Bangladesh President and Energypac Group Managing Director Humayun Rashid expressed the business' readiness to pay all the fair taxes in a transparent, hassle-free manner while urging for ease of doing business that costs firms a lot.
Bangladesh Freelancer Development Society Chairman Dr Tanjiba Rahman said IT Freelancers' income has been tax free. But, when the foreign firms pay them as fees the banks deduct a 10% tax at source.
Such ambiguities in incentives and tax policies need to be effectively removed, suggested Mustafizur Rahman.
Ahsan Adelur Rahman, MP, a member of the Parliamentary Committee on Estimates said the world including Europe is making small digital entrepreneurs lives easier and chasing the giants for fair taxes and Bangladesh should not be an exception as the country eyes to go smart by 2041 from the present status of a digital nation.
Business representatives complained that the electronic cash registers, which the NBR gave to businesses, had technical glitches and they believed those could be solved easily by democratising the procurement process.
CPD Distinguished Fellow Dr Devapriya Bhattacharya questioned the process of making the major economic decisions that does not engage the stakeholders including the relevant parliamentary committees often.
The five OECD principles of taxation – neutrality, efficiency, certainty and simplicity, effectiveness and fairness, flexibility – should be followed to tax the digital economy, he suggested.
Kazi Nabil Ahmed, MP, a member of the Parliamentary Standing Committee on Ministry of Finance spoke as the chief guest, where Marga Peteers, attaché at the EU Delegation made the introductory remarks.
Bangladesh Association of Software and Information Services (BASIS) Director Mr Habibullah Neyamul Karim, e-Commerce Association of Bangladesh (e-CAB) Vice President Mohammad Sahab Uddin were among the speakers where former senior officials of NBR, Ministry of Finance and other offices took part in the discussion.