Google, Amazon eye Bangladesh

Highlights

• Google, Amazon find complex VAT registration, payment methods as deterrents
• e-VAT registration requires a local address, but the two companies do not have any local office
• They want to pay taxes through any global bank rather than VAT agents
• Another major hurdle for Google or Amazon to coming to Bangladesh is the risk of double taxation

Google and Amazon are working out possibilities of enhancing their presence in Bangladesh, according to people who know of the matter.

However, both find complex VAT registration and payment methods as deterrents and have contacted the National Board of Revenue (NBR) to iron out the factors making the procedures cumbersome.

The e-VAT registration is unfavourable for the American technology companies because a permanent local address is a mandatory requirement and they do not have any local office.

Google and Amazon do not want to pay taxes through VAT agents. Rather, they will make payments through any global bank, preferably by electronic fund transfer.

They want an intermediary global professional firm like any one of the "Big 4" with a strong presence in Bangladesh to solve VAT issues on their behalf.

The Big 4 refers to the four largest accounting and auditing firms – PricewaterhouseCoopers, Deloitte Touche Tohmatsu, Ernst & Young, and KPMG.

The intermediary firm, whoever is selected, will review all regulations/guidelines as well as papers prepared for VAT payments for Google and Amazon.

Another major issue Google or Amazon faces is the risk of double taxation. When a buyer/customer in Bangladesh uses a credit card to make a purchase from Amazon or other similar vendors, the bank that the card belongs to automatically deducts VAT from the transaction.

But this information is not relayed to Amazon or the likes. So, any later VAT payment claims befall Amazon and other similar companies, hence, making a case for double taxation.

So, both Google and Amazon want this kind of automatic VAT deduction to stop. Instead, they want to make VAT payments through a banking intermediary in Bangladesh, facilitated by a global professional service firm working for them.

"Google and Amazon are seriously watching how the government reacts to their proposals," said a business insider.

"They look for ease of business and want to test the bureaucratic system here," he added.

Sources at the NBR said Google and Amazon had contacted a consultancy firm in Bangladesh to get registered here. They sought information about their possibility of expansion, Bangladesh's VAT structure and regulatory affairs.

An official of the consultancy firm has told The Business Standard that the international tech companies have two probabilities – one is to do business through deploying agents and completing the registration process, and the other is to set up local offices to get a more permanent business outlook. 

The whole thing is at the preliminary level. Google and Amazon are now studying issues like how much tax they may have to pay, and the regulatory framework that they will have to follow if they set up offices here, the source said.

Md Masud Sadiq, member (VAT Policy), of the NBR, said complications in the VAT registration process had already been removed.

In a gazette notification issued on 1 December, the NBR said foreign organisations would be able to get registered to pay VAT by appointing a local agent.

The scope of payment through foreign banks is being discussed, Sadiq said.

On double taxation, he said if tech companies opened offices in Bangladesh, they would be able to collect VAT challans from advertisers and other organisations to make adjustments at the final stage of taxation.

The tax regulatory body is working on how to relieve Google and Amazon from double taxation in case they do not set up local offices. 

The possibility of Google and Amazon operating in Bangladesh is slim even if these major issues are resolved, said a source at the NBR.

An official of the VAT wing of the NBR has said according to the new VAT law it is mandatory to use Sales Data Controller if a company's turnover exceeds Tk5 crore. It will also have to show purchase accounts while submitting returns.

But the tech giants are facing complications around both the issues since they use their own global platforms for accounts and make no purchase in Bangladesh.

Therefore, they have to appeal to the government, seeking a solution. Since the matters have legal aspects tied to them, the solution will take time, said the official from the VAT wing.

At present, Google operates in 40 countries around the world, having set up 70 offices, while Amazon has offices in 17 nations.

Both the companies have local offices and entities in India, including the biggest office of Amazon in Hyderabad.