The entire world is facing this trouble. All countries, including in Asia, Africa and Europe, are looking into how to slap taxes on the tech giants. Countries were advancing in various ways. Finally, the Group of Seven (G7) advanced economies reached a landmark agreement to back a minimum global corporate tax rate of at least 15 per cent on multinational tech companies.
The finance ministers of the G7 countries – US, UK, Japan, Canada, France, Germany and Italy – met in London on 5 June where they all agreed to impose a tax on multinational tech companies. Global media gave this extensive coverage. According to a report by BBC, if the deal is done the governments will receive billions of dollars that will help them fight the coronavirus pandemic and revive the economy.
Readers must know why this minimum tax has become necessary. Corporate tax varies from country to country. Various countries offer the lowest tax for businesses and individuals and this is called tax haven. Luxembourg, Cayman Islands, Ireland, British Virgin Islands and Singapore are among the countries or territories known as tax havens. Multinational companies report their profit there.
Before the G7 summit, Tax Fair Foundation released a report saying tech giants known as Silicon Six of the USA avoided $96 billion (9,600 crores) in taxes in the last decade.
India's online news website News18 published an analysis on the possible impact of the G7 consensus on tax. It said if the agreement is done, companies must pay taxes regardless of where they are based. This is imperative for Bangladesh.
Thousands of dollars of revenue per minute
US-based media CNBC released a comparative figure of the tech giants’ revenue. According to CNBC, during the pandemic, e-commerce company Amazon's revenue was more than $800,000.25 per minute, Apple: nearly $700,000 per minute, Alphabet: more than $400,000 per minute, Microsoft: over $300,000 per minute, Facebook: over $200,000 per minute, Tesla: over $80,000 per minute and Netflix's revenue was more than $55,000 per minute. They earn from almost every country in the world. The Bangladesh market is considerable too. They earn revenue from advertisements, subscription fees and various services. Many people also earn through their services. But companies based in Bangladesh pay corporate tax at a rate of 22 to 45 per cent on their profit.
Data on how many subscribers Netflix and Amazon Prime have in Bangladesh, how many people buy foreign products and services using credit cards, can't be determined. No government agencies is said to be collecting the relevant so far. So it can't be determined exactly how much revenue tech giants are earning from Bangladesh.
Why imposing a tax is necessary?
Tariff on the import of products is high in traditional taxation. The tax rate is low when the products are manufactured in the country for the sake of employment. For example, import tax in motorcycles is about 152 per cent whereas tax on motorbike manufactured locally stands at 38 per cent. Foreign products are subject to this additional tax to help local manufacturers survive in the competition with the importers.
But Netflix is providing service in Bangladesh without any kinds of tariff. There is no import duty, advance tax or VAT. So, how will the online streaming services based in Bangladesh compete with the billion-dollar company Netflix? What will happen to their protection?
When it comes to tax collection, local companies are being strangled and multinational tech giants operated from outside the county are being spared from tax. It is a great discrimination. Advance income tax is realised from local traders during the import of raw materials of products. Whether traders make profits or face losses, the government adjusts this with income tax. Many people including the former chairman of influential traders' body Metropolitan Chamber of Commerce and Industry Syed Nasim Manzur objected, asking why they must pay income tax if there is no income. No one pays heed. The tax continues to exist. But the National Board of Revenue (NBR) doesn't realise advance income tax from companies like Google, Facebook and Netflix.
The government imposes a higher tax on luxury and hazardous products. This happens in all countries. But has the government considered imposing restrictive tax on the services including socially harmful apps and addictive games?
Digital tax in countries
According to the World Bank website, digital economy accounts for 15.5 per cent of global GDP and is growing two and a half times faster than the global GDP. There is no doubt the contribution of the digital economy will increase in future. That's why all countries including the rich and the poor ones have been active in bringing digital economy under the tax net. In many cases, a direct tax is being imposed since no other approach is being found.
Last December, France imposed a three per cent digital service tax (DST) on information technology companies. The country passed the law in 2019 incorporating the provision to impose the DST. At that time, the USA protested the move claiming this tax wasn't fair.
According to a recent report of multinational consulting company KMPG, 18 countries has imposed or proposed digital tax. Neighbouring India has imposed a 2 per cent digital tax from April 2020 and African country Kenya has slapped a 1.5 per cent in January this year.
What is Bangladesh doing?
The Newspaper's Owners Association of Bangladesh (NOAB) has been demanding for several years tech companies like Facebook and Google be brought under taxation. NOAB sent letters on the matter to finance minister at the time Abul Maal Abdul Muhith in 2017 and 2018. The top court also gave directives at various times to collect tax from tech giants.
The government then took initiative to bring these companies under the tax net, but the move is still visible for VAT only. Companies like Facebook and Google have got VAT registration. Before that, a separate service code dubbed "electronic services" was created under the new VAT act in the budget for the 2019-20 fiscal year. In June last year, Bangladesh Bank ordered all banks to realise 15 per cent VAT against the bills of streaming sites.
The question is how will the tax be collected from the companies and whether the tax will be realised or not.
Still going for easy ways
According to an article titled "Taxes in the Ancient World," published in the journal Almanac of the University of Pennsylvania, the first official taxation was introduced in ancient Egypt.
Various tax systems have evolved with time changes. The tax system has also transformed with economic activities. Value Added Tax (VAT) was launched in Bangladesh in 1991. As time changes, tax collectors need to change and increase their skill and capacity. Change in rules is also necessary to ease tax collection from new businesses.
Bangladesh's tax regulator National Board of Revenue (NBR) is used to going the easy way. There are 3.8 million (38 lakh) tax identification number (TIN) holders in the country. Forty-five per cent of them don't submit their returns. There are no effective measures to catch them. Most of the NBR's tax collection comes from source tax. As a result, traders take the tax money from people's pocket.
For example, there is an 89 per cent tariff on the import of fruits like apples, oranges and grapes. So, traders fix the price by calculating import cost, tax and profit and that includes five per cent advance income tax for individual traders. As a result, customers will have to pay the income tax too.
However, there is no way to take an easy path to collect taxes from tech giants. It will require a new approach and bold step to impose this tax. Tax collectors will have to be skilled at auditing the technology and technological systems. Where money can't be collected from rich people living in upazilas just 100 kilometres away from Dhaka, how will the government collect taxes from Google that operates from in California, USA, some 12,580 kilometres away from Dhaka?
We will simply continue paying tax of Tk 26 against a litre of soybean, Tk 25 for a kilogram of sugar and Tk 25 against a Tk 100 mobile phone recharge whereas foreign tech giants will continue enjoying no tax burden.
* This article appeared in the print and online edition of Prothom Alo and has been rewritten for the English edition by Hasanul Banna