Localised Digital Service Tax: Points to ponder

Global trade is being disrupted by the tax disputes over technology giants who mostly operate from Silicon Valley. According to 2019 statistics by Statista.com, six out of the 10 largest companies in the world by market value were technology companies. No wonder that technology giants like YouTube, Amazon, Facebook and Alibaba are causing disruption to the national economies to a much greater extent than international trade and tax rules.

There are strong chances that tech fight (on tax between Europe and the US) may weaken world trade. US President Donald Trump has been an unlikely ally to the US tech giants and has protected them from the digital tax imposed mainly by the European countries. President Trump said that the enactment of the French version of “Digital Service Tax” discriminated against the United States and could lead to retaliatory tariffs. But later, his Treasury Secretary Steven Mnuchin softened the stance and urged countries to adopt a multilateral deal and suspend the targeted tax for digital services by US tech giants.

When it comes to Bangladesh, the country is yet to table a plan on how it would work on this issue. The Daily Star published an article on November 23, 2017 and later a writ petition was filed in the High Court Division which issued a Rule Nisi calling upon the respondents to show cause as to why they should not be directed to take immediate necessary steps to realise appropriate tax, VAT or any other government charges from the revenue earned by the internet companies such as Google, Facebook, Amazon, Yahoo, YouTube etc. The regulating agencies later directed the scheduled banks to collect 15 percent VAT on payment made to social media and online advertising platforms including Facebook, YouTube and Google. While banks are yet to establish a technical mechanism to determine the volume of such payment from Bangladeshi consumers, the tech giants in question have remained outside the tax purview.

According to a report published by The Daily Star on August 31, 2019, digital marketing is a Tk 2,000 crore market. However, we do not have any data on the actual revenue figure that the tech giants are earning from Bangladesh. As stated in the article on taxing the tech giants, there are quite a few services by the technology giants from which they earn a significant amount of revenue. So, if we combine all kinds of services by the tech giants, the market size of the digital business will be much higher than Tk 2,000 crore. Unfortunately, government agencies have so far been unable to table a strategy and find a way to bring the technology giants under local financial (tax) and operational regulations. Both Facebook and Google have made it clear that they wouldn’t set up their offices in Bangladesh. Why would they, when they are able to do business without any resistance? Plus, there are international companies that are working for companies like Google and safeguarding their interest. In November last year, online business in Bangladesh started receiving an instruction that asked the local online businesses to submit their Business Identification Number (BIN) to Google. Google started collecting the BINs when a multinational company that provides audit and assurance, consulting and tax services advised Google to do so. It is very likely that Google will hand over these BIN numbers to the competent tax authority in Bangladesh indicating the volume of digital business it has done with a local company. It will then be easier for the taxing authority to collect 15 percent VAT on the volume of business and Google will be able to continue its business as usual. Slapping 15 percent VAT on digital marketing and keeping the tech giants outside the financial and legal purview is a very narrow and self-deceiving attempt.

As stated in the beginning, technology is a powerful variable in international trade, and tech giants will use its power to the fullest extent possible to keep itself in the driver’s seat. President Trump may not like Big Tech but it is very likely that he and his government will retaliate against other countries taxing the technology giants based in the Silicon Valley. In the past, Trump’s administration has strongly postured against India when India considered the prospect of data localisation—the White House even considered capping H-1B visas. It also announced an inquiry into France’s proposal to tax Facebook, Google, Amazon and Apple. There is a good chance that the matter might end in tariffs for France. This is something Bangladesh has to consider if it is really serious about taxing the technology giants.

This was first published in the Daily Star on 18 January 2020. Click here to read

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