The government is going to make trade licences mandatory for over five lakh small e-commerce businesses running on Facebook and other social media platforms and bring them under regulations to expand its tax net as well.
Meanwhile, larger e-commerce entities involved in selling products on digital marketplaces and those having their own websites will have to register for VAT (value-added tax) apart from obtaining a trade licence.
To this effect, the commerce ministry is set to issue "Digital Commerce Operation Guidelines 2021" as a circular next month.
Apart from streamlining the sector, the government expects to earn over Tk200 crore in revenue by issuing trade licences to e-commerce entities centred on Facebook and other social media platforms. The trade licences must be renewed every year adding more money to the exchequer.
E-commerce operators, however, are opposing the government's move saying enforcement of strict regulations might prove to be hindrances to the growth of this booming sector.
Many small-scale e-commerce entrepreneurs will shut down their businesses to avoid the hassle of obtaining a trade licence, the fear.
Meanwhile, the Bangladesh Bank has drafted a policy to make transactions in the banking channels compulsory for courier services that collect cash from buyers through the delivery of e-commerce products in the cash-on-delivery system.
Courier services have to open a "settlement account" in a bank. No money other than cash collected through the delivery of e-commerce items can be transacted through that account.
The central bank has sent the draft policy to the stakeholders for their opinion.
E-Commerce Association of Bangladesh (e-CAB) currently has around 1,300 members. In addition, there are more than five lakh small e-commerce traders engaged in business using various social media including Facebook, said Mohammad Abdul Wahed Tomal, general secretary of e-CAB.
Hafizur Rahman Pulak, president of Courier Services Association of Bangladesh, said about 50,000 employees of courier services are involved in the delivery of products of these e-commerce companies across the country.
According to commerce ministry officials, the draft "Digital Commerce Operation Guidelines 2021" – prepared for preventing frauds in e-commerce and building the confidence of consumers – has almost been finalised after getting inputs from various ministries.
The commerce ministry will hold a meeting with stakeholders on 21 March for further discussions on the draft policy.
The policy will be issued as a circular next month, after necessary changes based on additional feedback, if any, received at the meeting, said Hafizur Rahman, head of the Central Digital Commerce Cell of the commerce ministry.
According to the draft, all relevant laws in the country, including the Consumer Protection Act, would be applicable in implementing this guideline. E-commerce companies have to deliver a product to the delivery person within 24 hours of receiving the order. The product must be delivered within a maximum of five days of the order if the product is in the same city and within 10 days if it is in other cities or village areas.
If the right products are not delivered on time, the buyers can file cases with the Directorate of Consumer Protection or any other court seeking redressal.
Failure to comply with the provisions of this guideline may result in the authority taking legal actions, including revoking the trade licence, company registration or VAT registration of the seller and banning the business platform, says the draft policy prepared by the commerce ministry.
e-CAB opposes trade licence mandate on Facebook e-commerce
Abdul Wahed Tomal of e-CAB said the e-commerce business is expanding rapidly through Facebook.
If this newborn sector is trapped in strict regulations right now, its development could be hampered, he observed.
He further added that obtaining a trade licence is very difficult and time-consuming.
"Many of those who run small-scale e-commerce on Facebook from their homes may shut down to avoid the hassle of getting a trade licence. So we would suggest that it would not be right to impose any conditions that would act as a barrier to the creation of new entrepreneurs."
"We would rather propose identifying Facebook-based e-commerce entities based on information about the use of mobile wallets they are using or that of the courier services they are using for delivering their products, or by verifying their MFS information, instead of making trade licence mandatory for them," he added.
He, however, endorsed the need for VAT registration. "This is because if a company sells illegal products or cheats with customers, it will be possible to identify them easily," he explained.
Settlement account to be obligatory for courier services
Courier service companies pick up goods from various business entities, small entrepreneurs and e-commerce operators and deliver them to buyers through the cash-on-delivery system. The payments they get are sent to the sellers.
But the courier service providers face problems regarding revenue recognition while making payments of goods to the retailers through their bank accounts.
The Bangladesh Bank thinks that that is why courier service providers are handling such transactions in cash, but are facing various other issues.
Therefore, the central bank is preparing guidelines by making the opening of a settlement account mandatory for such transactions through the banking channel for the courier service providers associated with the cash on delivery system.
Courier service companies will be able to open a settlement account in any scheduled bank with the licence of the Posts and Telecommunications Division and the membership certification of the Courier Services Association of Bangladesh (CSAB).
A central data system must be in place to store necessary data of every step of money collection through cash-on-delivery and conditional booking and their payment process, which must be certified by the CSAB.
When contacted, Hafizur Rahman Pulak, president of the CSAB, told The Business Standard, "We had a meeting with the Bangladesh Bank last Tuesday regarding the draft guidelines on settlement account. We have not reached any decision yet. As a result, it is not possible to comment right now on how good or bad it will be for courier services and e-commerce business."
Settlement account will be closed for inconsistency in transactions
Courier service companies will have to store all money receipts of cash-on-delivery or conditional delivery in their central data system on a daily basis after crediting the money to their settlement accounts. The bank with whom the settlement account has been opened or the Bangladesh Bank will scrutinise it if necessary.
If any inconsistency is found in data, the bank concerned or the central bank may suspend or close the settlement account of the courier service company concerned.
According to the draft guidelines, the Bangladesh Bank and the Postal Department will be able to inspect the cash-on-delivery process of the courier service companies and give necessary instructions.
Delivery persons or agents of the courier services' local offices will deposit all the money they receive from buyers after delivering products in their respective settlement accounts. And they will save information of invoices in their central data system.
Local bank will transfer the money to the courier service company's central settlement account. From there the courier service company will transfer the seller's share of the product through bank, MFS or PSP account after deducting its commission.
For e-commerce sellers who do not have a bank account, the money deposited in the settlement account of the courier service will be paid in cash to the seller against the invoice. However, the amount of cash withdrawn cannot in any way exceed 10% of the total balance at any given time.
He said at present there are over 500 courier service companies in the country but the number of members of the association is 150. Of these, 50 have postal department licences. In all, the number of delivery persons in courier service companies is about 50,000.
"Our main obstacle to the successful development of the e-commerce business is the delivery system," said Tomal of e-CAB, adding, "If this can be fixed, the confidence of buyers will be boosted."
Regarding the draft guideline of the Bangladesh Bank, he said the matter is still under discussion. "We have not yet received a draft of this guideline."
Revenue collection to be easier
The government expects to earn over Tk200 crore by issuing trade licences to more than five lakh e-commerce operators who run their businesses using Facebook or other social media platforms.
Because currently there is no provision to issue trade licences in the e-commerce category, the Facebook-based e-commerce operators will have to obtain licences in the IT or software category by paying Tk1,100-1,500 as licence fee. However, trade licence fees vary depending on the area and type of business.
Another Tk4,000 will be needed to pay VAT, signboard tax, and physical visit tax.
On the other hand, the licence fee for courier services in different categories ranges from Tk50,000 to Tk50 lakh. Besides, a bank guarantee of Tk3 lakh to Tk2.5 crore has to be given as security. The government will get a huge amount of revenue from this sector as well.
In addition, bringing Facebook-based e-commerce under the coverage of trade licence will make VAT or turnover tax collection on their sales, said people concerned.
The VAT registration of companies involved in e-commerce business through online marketplaces also will further ease VAT collection, they added.
On the other hand, the government will be able to easily collect source tax on the transfer of product prices, including commission of courier services and profits of sellers, after product prices are submitted in the settlement accounts as per the guidelines of the Bangladesh Bank.