Non-resident tech kingpins like Facebook and Google should be roped in under the income-tax law by ensuring their physical presence in the country to increase government tax revenue, as they go freewheeling now like shell companies.
Distinguished Fellow of CPD Prof Mustafizur Rahman put forward the suggestion at a dialogue in Dhaka on Saturday, urging the government to take requisite measures in this regard in the Finance Act FY2023-24.
He was presenting a paper at the dialogue on 'Taxing the Digital Economy: Trade-offs and Opportunities', organised by the Centre for Policy Dialogue in partnership with the European Union at the Bangabandhu International Conference Centre.
"Legal provisions will be needed in order for them to obtain TIN (Tax Identification Number) and submit tax returns," he told the event, attended by economists, trade leaders and former tax officials.
In recent years, non-resident technological giants like Facebook, Google, Netflix, Tiktok, Amazon etc are expanding their virtual reach in Bangladesh and the trend is expected to continue in future as life and business increasingly go digital.
According to sector insiders and the Association of Television Channel Owners (ATCO), digital ad spaces annually receive commercial ads worth at least Tk 20 billion from Bangladesh through the tech giants and other internet-based firms.
Prof Rahman stressed the need for the phasing, pacing and sequencing of tax exemptions on the digital economy to create scope for domestic resource mobilisation.
He also urged the government to review the existing tax exemptions on the digital economy.
In case of businesses that have been enjoying tax exemptions on the Information Technology Enabled Services (ITESs) for more than a certain period (for example 10 years) and are making profits should come under a review and be considered for the purpose of imposing tax, he said.
The economist said many issues related to the digital economy should be redefined before levying tax and regulating them. "The NBR should consider extending the scope of existing definition of service code 99.60 to also include online marketplace."
Prof Rahman also feels that the government ought to formulate a national policy to facilitate growth of digital startups in the country.
He stressed the need for considering issuance of a new service code for online marketplace, reportedly growing fast spontaneously and hence lacking standards in many cases.
The CPD keynote recommends a precise definition of e-commerce in the ITO of 1984, considering the likelihood of the vast majority of businesses establishing their online presence.
The National Board of Revenue (NBR) needs to come up with a precise and comprehensive definition of each of the ITESs which are granted tax exemptions so that misclassification can be avoided and the NBR does not end up collecting lower amounts of taxes.
A standardised accounting framework may be developed expressly for the digital economy.
"Such a framework would spell out proper guidelines as regards valuation and depreciation practices," Prof Mustafiz states in his presentation, adding that this would allow the NBR to determine actual tax liabilities of a digital company and help enforce tax regulations by the NBR officials.
He said that the Bangladesh Bank and the Export Promotion Bureau (EPB) should put in place appropriate tools to encourage and incentivise the sending of these earnings through formal channels. "In view of the current pressure on foreign- exchange reserves, this has become even more urgent."
Adequate investment should be made to improve the internet speed to stimulate growth in the digital platform-based activities and businesses.
Also suggested for the government to consider introducing PayPal in Bangladesh to capture the actual export proceeds from freelancing activities.
The CPD distinguished fellow said the government needs to take measures to formalise the F-commerce sector by bringing it within the ambit of legal framework. However, such regulations should not impede the organic growth of this sector.
Kazi Nabil Ahmed MP underscored the need for training the young generation to prepare themselves to fit in the digital economy and fourth industrial revolution.
He noted that Facebook, Google and these types of other shell companies are making profit in the country but without any physical presence here. They must be present in the country with their offices.
The lawmaker said inefficiency in the tax administration should be removed by increasing its capacity.
Ahsan Adelur Rahman MP said digital businesses pay less tax as compared to the profit they make.
The digital economy in the country is still at its infant level. "So the government should decide carefully before imposing tax on it," he said, underscoring the need for increasing the capacity of the NBR to deal with the digital economy.
FBCCI senior vice-president Mostafa Azad Chowdhury Babu alleged that NBR officials are reluctant to discuss issues with the FBCCI, and urged the government to build more specialised BCS cadres to deal with emerging sectors.
He suggested introducing an automated and human-contactless tax-collection system to increase the tax-GDP ratio.
CPD Distinguished Fellow Dr Debapriya Bhattacharya pointed out that, overall, the sector is a new business model and it should be well-defined before imposing tax.
"Transparency, neutrality, fairness, efficiency, quality of human resource and simplicity should be there in dealing with the digital economy due to the complex layers of the sector," he added.
He noted that the government entered into an agreement with the International Monetary Fund (IMF) without discussing the issues in any forum like parliament, cabinet meeting or parliamentary standing committees.
Bureaucrats signed the agreement whereas the consequences will have to be borne by the politicians, he said.
BASIS Director Habibullah N Karim said there must be domestic presence of the non-resident companies and they should be compelled to open offices in Bangladesh.
He also said that these companies must have to participate and invest in the country from their profits they make here and suggested following the rules and regulations created by the European Union for non-resident companies.
Mohammad Sahab Uddin, Vice President of the e-Commerce Association of Bangladesh (e-CAB), said the tax-collection system should be simplified as most of the e-commerce platforms are very small in size.
Dr Tanjiba Rahman, Chairman of the Bangladesh Freelancer Development Society, said there should not be any new taxes on the freelancers' income.
CPD Executive Director Dr Fahmida Khatun pointed out that many non-resident companies are doing business here but they do not pay taxes. She suggested finding ways to bring them under taxation.
The government has to look at how to logically bring them under the tax net without passing on a negative impact on the consumers, she said, stressing on taking institutional and legal preparation for imposing tax efficiently.
Former NBR Chairman Dr Nasiruddin Ahmed said there is an unholy nexus among tax officials, politicians and businesspeople to derive benefit out of it, causing losses to the national exchequer.
He suggested fixing the legal framework first before going for digital taxation and said full automation is a must to make a breakthrough in tax collection.
Former NBR Chairman Abdul Majid pointed out that the Digital Security Act (DSA) is acting as a psychological barrier to the digital economy and suggested reforming the law due to the sector's importance. "…it can be a cyber- security law."
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