EVSID/Özger: Withholding Tax on E-commerce Will Hit SMEs the Hardest
Concerns have emerged in the sector regarding the planned withholding tax for businesses engaged in e-commerce. It is estimated that around 425,000 small businesses, which make up 76% of e-commerce operations, will face serious financial difficulties due to this tax burden that will be deducted in advance from their sales revenues. Industry representatives warn that the established rates of 25% for sole proprietorships and 15% for limited and joint stock companies will increase informal activities and inflation. Talha Özger, Chairman of the Association of Home and Kitchenware Manufacturers and Exporters (EVSİD), stated that if this tax is enacted, it will negatively impact e-commerce SMEs and called for a reconsideration of the matter as soon as possible.
Firms engaged in e-commerce are already grappling with the challenges posed by the proposed withholding tax. If the law is passed, companies selling through electronic marketplaces will have income and corporate tax deductions made in advance from their sales. According to the draft prepared by the Revenue Administration of the Ministry of Treasury and Finance, which is set to commence on January 1, 2025, a 15% deduction will be made from sole proprietorships and a 25% deduction from corporations, with these deductions deposited on behalf of companies to the tax offices. No withholding tax will apply to sellers who are not tax liable.
SMEs are expected to be the most affected. There has been significant pushback from the sector regarding the draft prepared by the ministry. Industry representatives emphasize that the withholding deductions could halt the sector's growth and encourage informal work, which will also have adverse effects on inflation. It is noted that the proposed draft would primarily hit SMEs rather than large companies.
Özger highlighted that around 425,000 small businesses make up 76% of e-commerce enterprises, asserting that the advance tax deducted from sales will have very negative consequences for e-commerce SMEs. He noted that SMEs form the backbone of the Turkish economy and that e-commerce presents a crucial opportunity for their survival in the current economic climate, urging for a prompt review of the draft.
Özger reminded that the e-commerce sector already operates on low profit margins due to high competition and that the draft proposal considers gross sales, while the return rates for sales are higher compared to traditional sales channels. He emphasized that the withholding tax would hinder the sector's growth, promote informality, and thus have negative impacts on the fight against inflation. He stated, “This is like a new VAT rather than an income tax, affecting not just the domestic market but disrupting all companies. A tax taken from total turnover is not in line with the realities of the economy. This situation will adversely affect informality and raise prices.”
According to the Trade Ministry’s 2023 report, e-commerce volume in Turkey is expected to increase by 115.15% to 1.85 trillion TL in 2023, with the number of transactions rising by 22.25% to 5.87 billion. Özger emphasized that this figure will grow significantly in 2024. He underscored that if the law passes in its current form, it would deal a significant blow to the sector, asserting that while large firms and brands might be able to absorb this impact, especially SMEs may not withstand it. A 15% rate translates to a very significant burden for consumers purchasing from SMEs and producers working for them, creating serious financial pressure.
Özger also pointed out that the e-commerce ecosystem is not solely composed of SMEs but also gives life to various sub-sectors, including couriers, logistics, software, and payment systems. He warned that if the law is enacted in its current form, these sub-sectors could also experience significant contraction, ultimately negatively affecting employment.