OCTOBER 20 — Indonesia’s recent move to ban e-commerce transactions on social media platforms such as TikTok Shop, Facebook Marketplace and others has raised calls for Malaysia to follow suit.
The problem from a regulatory perspective is that social media sales platforms create e-commerce marketplaces for unregistered businesses and vendors who do not pay taxes and who cannot be held to account if products and services are illegal, harmful or not delivered properly.
It might also increase impulse buying, especially among children, which can cause overspending and debt problems for some people.
So there is a consumer protection issue in terms of safety and delivery and also in terms of protection of private information and financial details.
From an economics perspective banning these sites is a restriction on trade that closes down market opportunities for buyers and sellers alike. It restricts competition from which consumers and sellers can benefit.
The e-commerce transactions have emerged organically as a normal part of user experience of social media and the bans cut this flexibility, innovation and agility.
Creating the new market space on social media platforms offers sellers a new side hustle to generate income and offers consumers a new shopping option. It should be net positive.
There is a push for MSMEs and nano-enterprises to use e-commerce to grow their businesses and banning sharing economy platforms would simply restrict that and put Malaysia in a bad light again as a reactionary country with restrictions that are unfriendly to business.
It would restrict the overall market space and concentrate sharing economy platforms into a smaller regulated segment which would raise prices and create anti-competition issues.
This reduces options for sellers to grow their business and restricts opportunities for customers to get the best deal from competitive sellers.
Instead Malaysia should try to be more flexible in addressing the concerns of stakeholders without killing the market.
The benefits of doing business on social media are that you can broadcast your offer to a wider customer base at very low cost. You can also track your marketing and sales strategies better by using the social media analytics to improve your success rate. You can also reduce your fixed costs such as retail space or storage facilities.
The downside for customers is that they might not have sufficient product protection and protection of their personal details used for payments. They might also not trust the sites if they do not know the vendor.
Most sellers on social media platforms are not registered business entities, so they avoid paying taxes through the emergence of an underground economy.
The government may be losing tax revenue as a consequence but this issue is not as serious as is often claimed.
First vendors pay taxes on the stock they sell, second the income for vendors can be taxed through their annual returns and third if tax is avoided through the business it can be collected when the income is spent through consumption taxes. So one way or another the tax is collected.
Alternatively the tax can be placed on the payment process not on the vendors. Then the tax can still be collected on every transaction. This could generate billions in revenue. Bank Negara recently estimated that there were 9.5 billion e-payment transactions in 2022.
Increasing regulation will “kill the goose that lays the golden eggs.” The whole basis of the success of these platforms for both vendors and buyers is that there is low regulation.
It is better to have less regulation to allow this market to grow and generate value which in turn creates jobs, income and investment in the MSME sector.
It is also easier to track illicit business through social media platforms because the platform providers have the data on illegal vendors and have an incentive to work with authorities to track down illegal activities.
The government could come up with a certification scheme to generate trust in sharing economy platforms and help consumers choose the most trusted providers and vendors.
A voluntary certification scheme with customer feedback and stakeholder verification would go a long way to addressing the issues of trust without closing down the sites.
* Professor Geoffrey Williams is an economist and Provost for Research and Innovation at Malaysia University of Science and Technology. The views expressed are those of the writer’s.
** This is the personal opinion of the writer or publication and does not necessarily represent the views of Malay Mail.
