How the Internet Transactions Act can stifle MSMEs

The government must balance regulation with the growth of MSMEs and barriers to entry in the e-commerce sector

E-commerce has become the default mode of transaction for Filipino consumers and MSMEs.

Now that the pandemic is over and the economy has opened up, consumers and businesses have embraced the benefits and convenience of online and e-commerce platforms using cashless payment methods, thus creating an opportunity for the country to evolve into a thriving digital economy.

As internet penetration improves with increased investment in digital infrastructure, the borderless nature of ecommerce offers great opportunities to tap into a global marketplace that is open to all ecommerce merchants, large or small.

However, the ease and speed of ecommerce transactions also create problems and challenges.

The Department of Commerce and Industry has reported growing complaints from consumers about incorrect transactions due to defective products and deceptive, unfair or inconceivable sales acts or practices by some online sellers.

The Philippines has experienced significant growth in the e-commerce sector, with total market sales reaching $17 billion in 2021, largely due to the COVID-19 pandemic.

The US Department of Commerce estimates that by 2025, total sales will reach $24 billion.

This rapid growth has led to the need for a regulatory framework to govern the industry.

In December 2022, the Internet Transactions Bill passed the lower house and is now pending in the Senate.

The ITA’s goal is to regulate the industry, protect consumer rights, promote intellectual property, and more.

E-commerce has offered opportunities for growth and wider participation of MSMEs in the market.

With lower fixed capital requirements, barriers to market entry are low, encouraging many small local entrepreneurs to participate.

MSMEs have found platforms not only in e-commerce giants like Shopee and Lazada, but also in social media.

However, both large e-commerce platforms and MSMEs have expressed concerns about the current version of the ITA proposal, which is now pending in the Senate.

While the bill aims to empower consumers, there are provisions in the current proposal that not only create barriers to entry, but also include sanctioning provisions that could put MSMEs at a disadvantage.

Setting up an online dispute resolution system where online consumers can file civil and administrative complaints has both advantages and disadvantages.

On the one hand it can help prevent scams.

On the other hand, overarching regulation could hurt small operators, as the definitions of infringement, liability and other terms are currently defined so broadly that MSMEs could face numerous lawsuits and high fines they cannot afford.

Large platforms like Shopee and Lazada have their own legal departments to handle and resolve such cases, while ecommerce-based MSMEs may not have the legal capacity or resources to do so.

The proposed bill will create more bureaucracy, requiring both platforms and merchants to register with the e-commerce bureau for transparency and legitimacy purposes.

The information required for registration will be made public, potentially raising data privacy concerns. Additionally, the current bill imposes a wide range of obligations on online retailers and online merchants, including detailed guidelines on marketing, selling, issuing receipts and invoices, and more.

MSMEs may not have the manpower capacity to comply with these broad guidelines, as most small e-commerce businesses operate with a limited number of employees.

The proposed regulations could potentially act as a barrier to market entry rather than promoting growth in the sector, which could put MSMEs at a disadvantage.

Excessive regulation could even lead many MSMEs out of business.

This sentiment was echoed by MPMI participants in a roundtable discussion held by the Bayan Academy in December 2020, who noted that if registration implementation, additional fees and increased regulation were required to participate in e-commerce, they would less likely to engage in e-commerce. sector.

It is clear that these potential changes could have a significant impact on the willingness and ability of MSMEs to participate in e-commerce, which is a concern both for businesses themselves and for the consumers who benefit from their services.

As the rights of both buyers and sellers in the online marketplace must be protected, a legal framework is needed to govern the e-commerce space, but it must balance regulation with market growth and innovation.

A good model is Singapore’s approach to e-commerce regulation.

They issued their first national standard, TR 76, to increase transparency and consumer trust in online transactions. Electronic marketplaces must display their legal identity and contact details and have mechanisms to handle disputes.

The guidelines aim to improve consumer awareness and self-regulation to avoid scams.

Desmond Tan, chairman of the Interministerial Fraud Committee and Minister of State in the Singapore Prime Minister’s Office, said evaluations of the e-commerce marketplace’s transaction security build on these guidelines by raising consumer awareness of anti-fraud measures. scam on the main electronic services. commercial markets in Singapore.

While the proposed Internet Transactions Act could ensure consumer protection, the government needs to balance regulation with the growth of MSMEs and barriers to entry into the e-commerce space.

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