Business Report :
Businesses operating online, including those in e-commerce, had hoped the internet would become more affordable. To that end, they had demanded a reduction in internet prices in the upcoming 2025-26 fiscal year budget, that hope has been dashed.
Instead, Economic Advisor Salehuddin Ahmed has proposed to increase the VAT on online product sales commission from 5 percent to 15 percent. This has caused concern among small and medium entrepreneurs in the sector, who fear they will be negatively affected by the hike.
Industry insiders say that Bangladesh’s e-commerce sector still lacks substantial investment and the market remains weak. Venture capital investment is also low. They question how much additional revenue the government expects to collect from this sector by raising VAT. According to them, compared to the overall revenue targets set in the budget, the contribution from this sector will be minimal. Moreover, loss-making companies will have to pay the additional VAT out of their limited investment funds.
Previously, sellers on e-commerce and online platforms paid 5 percent Value Added Tax (VAT). That means, if a seller made a profit of BDT 100, they paid BDT 5 in VAT. Now, that same seller will have to pay BDT 15. To bear the extra burden, sellers are likely to increase product prices-costs that will ultimately be borne BY consumers. Platforms that source and sell their own products will pay the VAT themselves. As a result, both entrepreneurs and consumers in the e-commerce sector will be affected by the VAT increase. Industry stakeholders fear that this could jeopardize the promising future of e-commerce.
According to the E-Commerce Association of Bangladesh (e-CAB), the current market size of the online and e-commerce sector in the country is BDT 2,500 crore. There are nearly 500,000 small and medium sellers operating in the sector. Industry stakeholders note that most e-commerce entrepreneurs cannot afford to rent physical stores, which is why they sell online. Therefore, the additional 10 percent VAT will disproportionately affect these emerging small entrepreneurs.
One of the responsible officials from Daraz Bangladesh, said, “Ninety-five percent of Daraz sellers are small and medium enterprises (SMEs). In the current economic climate, the extra VAT will have a negative impact on them. With the VAT hike, we will fall behind in international competition, and there is also a risk of a decline in foreign investment.”
e-CAB administrator Saeed Ali said most of the country’s e-commerce consists of small entrepreneurs. Therefore, the increased VAT will most severely impact grassroots-level entrepreneurs. As a result, the government may end up needing to provide more subsidies than the revenue it gains.
According to a quarterly ICT use survey conducted by the government agency Bangladesh Bureau of Statistics (BBS) for October-December last year, internet use has not increased significantly despite the rise in smartphone usage. As of the end of December, 52.4 percent of households in the country used the internet. In the previous July-September quarter, the household-level internet usage rate-urban and rural combined-was 50.4 percent. That means nearly half of the country’s households remain outside the reach of internet services.
One of the senior officials of e-commerce platform Chaldal, said, “E-commerce is not something that expands on its own. Countries that have succeeded in this sector have invested between USD 70 and USD 200 per capita. In Bangladesh, that figure is less than USD 3. Instead of addressing this shortfall, we are imposing a new VAT burden.”
An officials from online food delivery company Foodpanda said, “Additional VAT imposed on the commissions that online platforms collect from sellers, it will increase our service costs. This may raise the price of our services. If prices of products and services rise suddenly due to the VAT hike, demand for online services could decrease. Consumers may then turn to alternative options. This will impact the entire e-commerce and online delivery ecosystem.”
