IN AN era when digitisation is rapidly reshaping economies, Bangladesh stands at a crossroads. Online businesses, from听 electronic commerce giants to freelance platforms, are creating employment and contributing to economic growth.
The electronic commerce phenomenon has, however, also posed significant challenges for the traditional tax regime. As Bangladesh grapples with the complexities of taxing the digital economy, it needs to strike a balance between fostering innovation and ensuring a fair and equitable tax system.
A primary issue facing Bangladesh鈥檚 taxation system is the definition of taxable presence, commonly referred to as a 鈥榩ermanent establishment鈥�. Traditional brick-and-mortar businesses have physical locations that establish their tax liabilities within specific jurisdictions, but the intangible nature of digital transaction makes it difficult to track and tax incomes effectively.
The National Board of Revenue says that it is 鈥榲ery difficult鈥� to bring the industry under tax net as there are many online businesses that sell products through social media platforms apart from online marketplaces.
According to a recent research, Bangladesh has about one million freelancers, with 650,000 of them working in information technology. Past estimates of the information and communications technology minister suggest that the latter group earns around $1.0 billion a year. Yet, the current system makes it hard to ensure that such freelancers should contribute their fair share of taxes.
In Bangladesh, like many other countries, this challenge is compounded by the absence of clear guidelines and regulations, especifically tailored to the digital economy. This allows some to avoid paying taxes, hindering government efforts to invest in critical sectors such as infrastructure, education and health care that are vital for public welfare and, even, sustaining growth.
To address this challenge, Bangladesh needs to modernise its tax laws and adapt them to the new realities of the digital economy. This includes updating definitions of taxable presence to encompass digital activities and transaction. And implementing measures such as digital permanent establishment rules can help to ensure that digital businesses contribute their fair share to tax revenue.
There could be some models that can be explored. Digital transaction tax: A small levy on online transactions could generate a significant amount of revenue without stifling innovation. VAT on digital services: Extending value-added tax to digital services such as online advertising and streaming platforms would ensure a level-playing field with traditional businesses. Enhancing tax administration: The revenue board can leverage technology to improve tax collection and compliance and investments in data analytics and digital auditing tools could help to track online transaction and identify potential tax evaders. Promoting transparency: Clear tax regulations and guidelines specifically designed for the digital economy are essential and this can foster greater transparency and encourage businesses to operate within the formal tax framework.
Furthermore, Bangladesh should explore international cooperation and collaboration to effectively tax the digital economy. Given the cross-border nature of digital transaction, unilateral action may prove insufficient. Participating in initiatives such as the OECD鈥檚 Base Erosion and Profit Shifting project can facilitate the development of internationally accepted tax principles and standards for the digital economy.
Implementing these reforms requires careful considerations. Overly complex regulations could stifle the growth of this emerging sector. The imposition of mandatory income tax returns on small entrepreneurs who sell products online could be detrimental either to the sector.
The Policy Research Institute executive director says that the obligation to file tax returns on low-income people is likely to increase their harassment. The current tax system imposes VAT on 鈥榦nline marketplace鈥�, but the classification of each digital shopping portal is not clear. A higher level of transparency is required to ensure that small entrepreneurs have the chance to flourish.
There should be more focus on relaxing tax regimes for new freelancing work force as small entrepreneurs is important for bolstering e-commerce growth. Now, only after the sector has boomed, they should be brought under the tax bracket. Finding the balance between revenue generation and fostering a dynamic digital ecosystem is the important.
By embracing the opportunities, Bangladesh can unlock the full potential of its digital economy. A well-designed tax system can ensure a fair contribution from all players, generate revenue and enhance Bangladesh鈥檚 position in the digital world. By working together, policymakers, businesses and citizens can navigate this digital frontier and ensure that Bangladesh thrives on the new economic landscape.
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Nusaiba Nawar is a student of accounting and information systems at Bangladesh University of Professionals.
