Experts seek end to tax on online marketplaces

Say 17% tax will curb growth of the nascent e-commerce platforms

KARACHI:

Experts have urged the government to withdraw the proposed general sales tax (GST) on e-commerce marketplaces, saying it would dwarf the growth of the nascent market.

Taking to his official Twitter handle, Nest I/O Founder Jehan Ara tweeted, “Marketplaces are a new phenomenon in this country and need much more time to grow and strengthen. 17% GST will be too much for them to bear.”

“Do we want to nip them in the bud?” she questioned.

Speaking to The Express Tribune, Daraz Group Global CFO Kiran Faruqi said, “In the federal finance bill 2021, we as an online marketplace have seen several constructive developments, however, there have been certain changes proposed in the Sales Tax Act 1990, which pose a threat to the nascent marketplace industry in the country.”

She said that the proposal states that platforms operating online marketplaces would now be included within the definition of tier-1 retailers and are proposed to be taxed at 17% on all transactions conducted on the platforms.

“For an online marketplace model to work, the title of goods must remain with the seller - not the online marketplace as it would be the case if the proposal is implemented,” Faruqi highlighted.

According to her, the proposal would effectively make the online marketplace a legal seller instead of the actual seller of the product.

“Other countries even some Asian countries have imposed tax on online market places but their rate is very low,” said Topline Securities ICT analyst Umair Naseer. “The purpose of the government is to increase tax net but the equation should also be beneficial for all stakeholders.”

“We believe the proposal if passed, would drastically hamper the industry,” she pointed out.

Without online marketplaces that help sellers effectively reach and engage with users by leveraging the internet and leading technology, SMEs likely would not be able to compete effectively and complete as many transactions; therefore reducing the overall economic activities, number of jobs created, and tax collections.

Endorsing views of his fellow experts, UNISAME President Zulfikar Thaver said, “These policymakers have not understood the basic concept of sales tax.”

“As per the sales tax manual, it is imposed to discourage spending on the item, it is usually imposed on imported items or items made of imported raw materials; such as cigarettes, liquors, luxury items, etc whose buying is to be discouraged,” he maintained

Thaver stated that due to Covid-19 pandemic, retail businesses adopted online platforms and instead of supporting them, the government is imposing sales tax.

The Daraz official highlighted that from consumers’ perspective, they would also lose convenient access to a large number of goods across categories that are important for their daily lives, negatively impacting the quality of their lives.

“To achieve the ultimate goal of expanding tax net for SMEs, we believe it would be more beneficial to focus on creating incentives for unregistered retail participants to digitalise and register themselves - this would serve the digitalisation vision more fruitfully by activating SMEs and maximise long-term tax revenues,” Faruqi suggested.

Published in The Express Tribune, June 20^h, 2021.

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