Muhith proposes 5 percent VAT on online shopping, tax law on Google, Facebook, YouTube

Finance Minister AMA Muhith has proposed 5 percent Value Added Tax on online shopping in 2018-19 fiscal year.

He also proposes introduction of provisions in the related law to tax virtual and digital entities such as Facebook, Google, YouTube on their income earned in Bangladesh.

“With the fast development of internet technology, social media and mobile application platform-based virtual business is booming,” he said in the proposed budget presented in parliament on Thursday.  

Muhith added he defined a new service code as ‘Virtual Business’ on which 5 percent VAT shall be imposed in order to bring these online virtual businesses within the tax net.

E-commerce entrepreneurs have expressed concern that the VAT may harm their booming business.

“Many will lose interest in e-commerce and F-commerce (Facebook commerce) if the costs go up in this sector,” E-Commerce Association of Bangladesh (E-CAB) General Secretary Abdul Wahed Tomal told bdnews24.com.

According to Tomal, currently around 1,000 online shops are operating in Bangladesh and more than 1,000 firms are based on e-commerce. The number of F-commerce or Facebook commerce entities is around 25,000.

Muhith also said Bangladesh’s economy is far more open now with the significant change in volume and nature of cross-border transactions.

“As a result, the risk of tax avoidance has significantly increased. Many foreign entities are earning money in Bangladesh through virtual and digital transactions, but we are not getting adequate tax from them,” he said.

But Bangladesh’s tax laws are not sufficiently up-to-date to bring all virtual transactions under the tax net as the virtual and digital business transactions are comparatively new, the finance minister observed.

He added introducing new provisions in tax laws regarding the taxation of virtual and digital sectors such as Facebook, Google, YouTube etc on their income earned in Bangladesh will expand the tax base.

The High Court on Apr 12 ordered the authorities to tax the transactions on Bangladeshi advertisements posted on Google, Facebook, YouTube and other similar websites.

It also asked why the order for an interim period should not be made permanent.

The court mentioned search engines Google and Yahoo, global ecommerce platform Amazon, social media website Facebook and video-sharing website YouTube.

Besides the advertisements, all other transactions like domain sale, licence fees will be under tax-at-source, duty and all other sorts of taxes.