ISLAMABAD: Online Marketplaces (OMs) operating in the country have reacted strongly against the changes proposed in the Sales Tax Act 1990, fearing that the bulk of businesses would shift away from these online sale platforms and give rise to unregistered sellers.

The Finance Bill proposed to place OMs under the definition of ‘Tier 1 Retailers’ and all transactions conducted via these platforms would be taxed at 17 per cent.

However, the online sale platforms maintain that authorities have to differentiate between online sale platforms and physical sale outlets. There are around more than 17 platforms that work as “online marketplaces” in the country, offering a wide range of products from secondhand items, groceries to other consumer and industrial products.

“The OM business model is adopted globally as e-commerce. This helps empower small and medium enterprises, drives the digital transformation of businesses and develop digital ecosystem in a sustainable manner,” said Daraz Group’s Vice President Muhammad Imran Saleem.

Under the OM model, the title of the goods remains with the seller and not the Online Marketplace. While each seller has its own ratings so that all customers can see the seller’s performance and reliability in order to make a qualified purchasing decision.

Under the new proposed amendment in the sales tax, the onus and burden of collecting and depositing sales tax (as an output tax) has been placed on the online marketplace industry.

The OMs will need to start issuing sales tax invoices on their books for all taxable goods processed through their platforms. The OM platforms will receive sales tax invoices from the registered sellers and will have to claim these as input tax in their tax submissions.

However, in case of unregistered sellers, the OM platforms will not be able to claim input tax on the invoices due to the unregistered nature of the suppliers.

“Input claims and their mechanics are currently unclear as products attract multiple tax rates which the seller would have charged to an online marketplace,” Mr Saleem said, adding that the net difference would be a cost borne by the online marketplaces.

He said that the online market platforms were at a very initial stage in Pakistan and the new restrictions would lead to mushroom growth of online unregistered sellers, leading to marketing frauds for the consumers. The consumers could lose convenient access to a large number of goods across categories that are available at such platforms.

Published in Dawn, June 20th, 2021