Turbulence in E-commerce Landscape of Bangladesh, and Regulatory Concerns

E-commerce, a fairly recent phenomenon globally, and by all plausible indicators, seems to become the very ecosystem of retail and wholesale commerce in near future, if not already for some niche markets, has also gained currency in Bangladesh, gaining strength with increasing rates of mobile internet penetration, number of smartphone users, and mobile financial services.

During the last few months, Bangladesh observed a flurry of events around the e-commerce business. It came to a wider public attention when the banks and mobile financial services stopping transactions with ten e-commerce companies in the last week of June 2021. Then the CEOs and other top officials of some of these companies got arrested in the middle of September 2021 on charges of fraud and embezzlement of money. In July 2021, the Ministry of Commerce published a policy guideline for regulating e-commerce business. This set of guidelines has the clear purpose of improving transparency, and protecting consumer rights. There are reasons to believe that if implemented properly, this new policy framework will bring transparency and better governance in the e-commerce sub-sector in Bangladesh. In addition to the policy guidelines, there have been a number of propositions to streamline the e-commerce sector. There are some questions that need to be answered clearly before e-commerce in Bangladesh can find a clear growth path ahead.

Escrow Account and its Implications: One notable feature of these guidelines is setting up an escrow account under the supervision of the central bank, to receive advance payments from the consumers against their purchase orders. No more than 10% of the invoice amount can be collected from the consumers in advance, as per the newly announced guidelines. The money collected from the consumers would remain deposited in the escrow account, only to be released to the e-commerce company after confirmation of delivery of the purchased product. Indeed, an excellent measure to cut down the false promises made by some of these e-commerce companies. It’s been learned that Bangladesh Bank will not operate the escrow account directly but will outsource the service, and the terms are not ready yet. Once the terms are ready, tendering process will start. Hence, it is reasonable to say it will be at least 18 to 24 months before the escrow account system will be in place. Meanwhile, mostly ‘Cash on Delivery’ mode of payment will be applicable for retail e-commerce business. Cash on Delivery is a widely accepted method, but often leads to revenue and income figures kept undisclosed, and the applicable VAT amounts undeposited by the businesses. Additionally, the growth and profitability of this sector is likely to remain under-reported in a ‘cash only’ environment, deterring further local and foreign investments. Any possible charges and fees for the escrow account services, whenever it might become operational, needs to remain reasonable, any monopolistic environment for such services needs to be avoided.

Unique Business Identification (UBID): Another notable feature is the requirement to obtain a Unique Business Identification (UBID) number for e-commerce companies. This implies, e-commerce specific Business Identification Numbers (BIN) will have certain criteria. What will be the qualifying criteria? What will be the business rationale behind the qualifying criteria? If the purpose of this new ID is to curb the scams, and protect the consumer interests, then what the other specific laws and agencies already existing for the purpose will do? The major laws governing commercial activities include company law, tax and VAT laws, intellectual property related laws, competition law, and consumer rights protection law. In addition, criminal procedural codes can be applied to curb fraudulent activities. How likely it is that the proposed UBID would end up as another tool restricting the budding e-commerce industry of the country? A pertinent question here would be, what will happen to the other standard registrations, and licenses, such as Tax Identification Number, trade license, VAT registration, or the regular Business Identification Number? Would any of these requirements be exempted, if an enterprise obtains UBID? All precautions need to be exercised against increased administrative barriers and rent seeking for creating a conducive business environment for e-commerce in Bangladesh.

Separate Tax Treatment: So far, e-commerce businesses are registered as IT Enabled Services (ITES) at the time of incorporation with the Registrar of Joint Stock Companies and Firms, and for issuing trade licenses from the municipalities or city corporations. ITES companies enjoy a tax exempt status till 2024, and so are e-commerce enterprises riding on the back of the ITES. Under the proposed separate tax treatment, would an e-commerce company still be exempted for tax obligation in the initial years? If so, for how many years? While it is a good policy intervention to offer tax exemptions to new and promising industrial sectors, Bangladesh unfortunately has a number of examples where perpetual inefficiency is nurtured by continued fiscal incentives and protection measures for over five decades. Frozen shrimp, ceramics, and accumulator batteries are some examples. If tax exemption is withdrawn, what will be applicable tax rates? Or they would be subject to turnover tax in form of a fixed amount taxed over declared revenues? As mentioned earlier, revenue from ‘cash on delivery’ can remain under-reported, and forensic of all sales reports will be difficult for tax officials, paving way for e-commerce companies to evade taxes. In short, if tax exemption is withdrawn, transparency in financial reporting, and governance of the tax administration must be assured.

Separate Regulatory Authority: We hear that a new regulatory body will be set up to regulate e-commerce business in Bangladesh, as it was mentioned by the Minister of Commerce in the 3rd week of September, 2021. If a new regulatory body becomes a necessity for the right kind of functioning of the e-commerce enterprises, then so be it. But would the new body be constituted by a fair representation of the government agencies, private sector, intelligentsia, and domain experts, or only by a few clueless administrative bureaucrats? What would be the regulatory and overseeing role of that body? Who would define the roles, responsibilities, and jurisdiction? How would they handle complaints and grievances? Would that not be overlapping with the roles of Consumer Rights Protection Authority? Moreover, it may take a couple of years more for the proposed body to be formed, and who would regulate e-commerce in the mean time? How would the e-commerce remain unhindered from too much and too many regulations, and administrative restrictions?

The many questions raised here are to provoke intrigue and start dialogues amongst the stakeholders, because e-commerce is here to stay and will definitely shape not only the retail and wholesale commerce, but a wide array of other economic activities – distribution, transportation, employment generation, internet use, and will bring the necessary changes in vocational demand. Bangladesh should get ready for future.

Shaquib Quoreshi
Enterpriser, Business Intelligence Limited (www.bisntel.com)
Contact: shaquib.quoreshi@bisntel.com