Tax Evasion by E-commerce Businesses in Bangladesh

Abstract

The unnerving momentum at which digital technology is progressing affects many aspects of business operations. For instance, businesses can now promote and sell their products on social media platforms with ease. Importantly, third world countries such as Bangladesh have been able to share in such technological strides along with more affluent nations. In Bangladesh, a myriad of small businesses have emerged with business models that depend on e-commerce platforms. These businesses are thriving in a fiercely competitive market with many of them importing their goods from the United States. One interesting feature in this marketplace is that the prices are much lower than those offered by brick and mortar stores. To investigate the reasons for this price differential, interviews were conducted with five respondents who operate businesses online and seem to be charging prices much lower than would be expected based on reasonable assumptions about input costs. In addition, to understand the perspective of potential customers, two surveys were conducted related to purchase intentions for two unrelated goods: the iPhone XS and Colourpop Lipstick. The primary objective of the research was to comprehend the price setting procedures adopted by the firms and customers’ willingness to buy products at different prices. My findings revealed that custom tax rates were the major cause for the price differential between brick and mortar stores and social media stores. This became clear from descriptions by the business owners of their procedures to import products in ways that avoid payment of customs tax and in pricing models that clearly do not include customs taxes. The results of the customer study suggest that price is the primary determinant of purchase intentions. Apparently, customers do not mind purchasing from a business that is evading taxes as long as it is cheaper. Importantly, the results indicate that the high tax rates charged by the government discourage citizens from complying with laws.