Taxing e-commerce: hassle-free, reliable mode of transaction


Ali Saeed
E-COMMERCE is a fast growing sector of our economy with stunning single day transactions of over a billion rupees. It is cheap, accessible, hassle-free and now getting more reliable. Historically, sale of CDs from an Internet platform namely NetMarket in the US in 1994 was the beginning of e-commerce. Today, globally, it is projected to make transactions of worth $27 billion by 2020. Pakistan has over 41 million ATM Card users, whereas the Internet access has crossed 20 Million users. The State Bank of Pakistan, in its white paper published on e-commerce, revealed transactions amounting to $622 Million in 2017, whereas by 2020, according to the data, the market is likely to cross $1 Billion mark. This market chiefly constitutes retails and wholesale of electronic goods, electrical and other IT equipment. Karachi, Lahore and Islamabad have a lion’s share in the e-commerce with 55% of the consumers. Another roving aspect of e-commerce is the freelance internet market, where 67% of our population, being below 30 years of age, has found it as an open ground for jobs and opportunities. Beside internet-commerce for goods and services, intangible-products and services are making this market space even more complex. These products and services have infinite database of audio, video and data-related items for the consumers. To understand its infrastructure, the concept of Market Space and Payment methodology are essential to the idea of e-commerce. Market spaces are platforms like websites which offer products and services arranged in specified categories.
Whereas, payments are done through Point of Sales (POS) which usually is a banking application on mobile phone or a handheld device with the delivery agent. Cash transaction is also valid where the delivery agent or courier receives Cash on Delivery (CoD) for the order placed by the consumer. When a payment is made through a mobile application the bank through a payment gateway intimates the supplier about the payment of a placed order. The supplier confirms the payment gateway about the already placed order and accepts the amount from the bank. In our massively undocumented economy, Cash of Delivery, unregulated international payment gateways and offshore internet giants are making this market out of control and out of sight from the national regulators and tax agencies. The undocumented-transactions in e-commerce will be the new challenge in coming days.
Since less attention has been paid to the documentation, registration and taxation of this sector, it is going to cost huge tax loss to our ailing economy. This evasion props-up when a consumer is involved with offshore internet giant like Netflix, Amazon, YouTube etc or is involved in Cash of Delivery (CoD) mode of payment. The transaction goes out of the radar of Federal Board of Revenue for the purposes of taxation and if it somehow gets caught, there is no mechanism in place to document and tax it. Another aspect is the hidden operation of payment gateways like Visa and MasterCard etc. Their logos are printed on ATM cards which goes unnoticed by many. These international payment gateways are not sharing information about merchants and consumers using their services i.e. making taxable transactions. They charge banks with annual fees and are working on transactions which are out of the radar of the tax agencies in Pakistan. Millions of dollars are being siphoned out of Pakistan by global internet giants who are adamant on not opening offices in Pakistan and thus, have remained untaxed. They include multinationals like Google, YouTube, Amazon, Alibaba, Netflix and many more.
State Bank of Pakistan started an initiative under SBP Vision 2020 to establish Pakistan’s own payment gateway, with a vision to internalize and provide of payment gateway services. With the name PayPak (like PayPal), the gateway has started operating and it is hoped that the ATM cards will bear PayPak’s logo along with Visa, MasterCard logos for that matter. If Pakistan is to document its economy and increase its tax revenues, it is imperative to plug this hole in FBR’s leaky bucket. Even for developed countries, documentation and taxation of e-commerce is a complex issue, but they have laws and systems already in place. It is pertinent to mention that countries like India, Belarus and Bahrain have attained the capacity to tax this sector of economy. For Pakistan, where population growth is around two per cent, almost double to that of India, with fast growing consumerism, such sectors of economy need immediate attention. The government of Pakistan should engage stakeholders with the backing of required legislation and get internet giants like Google, Netflix, YouTube etc open local offices in Pakistan for the purpose of documenting of economy and taxation.
In this battle for documentation and taxation of e-commerce, main stakeholders are FBR, SECP, SBP, Payment Gateways and Ministry of IT&T. Various attempts at individual as well as at institutional level to hold internet giants like Google, YouTube etc have failed. An example of this failure was during the issue of blasphemy which caused a national uproar forcing PTA to impose ban on some of these multinationals. The moment passed by and they were restored but chronic issue of tax evasion remains. Legislation and state-to-state engagements are now imperative. Money laundering has seen a lot of debate in recent times but this aspect of siphoning of millions of dollars, and that untaxed, will keep our tax-collection punctured. Given the growing volume of e-commerce transactions, Pakistan may lose tax-revenues worth billions.
—The writer is IRS Officer, FBR Islamabad.