Ecommerce Business in Nepal – Part 1

Posted by Parajuli Sushil 2 years Ago 4 Comments 85 Min Read

Latest update to this post: Ecommerce Business in Nepal – Part 2

Meaning of ecommerce

What is the “proper” definition?

There is no common and agreed on definition of ecommerce. It’s hard to define the term as much as it is to pin the scope of ecommerce. Generally, the term electronic commerce (ecommerce) has been defined to refer to a business model that allows companies and individuals to buy and sell goods and services over the internet. This definition of ecommerce could be a hangover of the use of the internet for buying and selling standardized goods/services during the early days of internet in the 1990s. The scope, models and the business covered through the digital means and the concept of ecommerce has changed drastically since then, requiring an updated and revised definition of the same.

It would be an understatement to say that our time is the time of digital prison (or digital pilgrimage, if you like) when we are clocking more than ⅓ of our time staring into screens and on the verge of immersing ourselves into virtual realities and metaverses. Since everything is on the web, there are only a few things that would not be defined as ecommerce based on “ecommerce”s old definition from the 1990s. It is a fine line and that too with its own inarticulate rebuttals.

So it may be helpful to discuss the features of ecommerce

So let’s try and discuss what are the features of ecommerce so that we can be judges for ourselves when deciding whether a platform for transaction actually does or does not qualify as ecommerce:

Ecommerce is Ubiquitous

Ecommerce is widespread and available always rather than being confined to conventional physical space for offices/shops/warehouses. For sellers, ubiquity provides global reach and they become able to reach across political and geographic boundaries easily, effectively and conveniently rather than traditional commerce. For buyers, ubiquity cuts transaction costs for exploring products in a market as they can acquire any information whenever and wherever they want, regardless of their location. It saves them time, traveling money and cognitive energy to transect a physical store.
Mobility of Users: Advances in technology and the increased connectivity characterizes that ecommerce industries are increasingly able to carry on commercial activities remotely while traveling across borders. An individual can, for example, reside in one country, purchase an application while staying in a second country, and use the application from a third country.
Monopoly Tendency: In some markets, particularly where a company is the first actor to gain traction on an immature market, network effects combined with low incremental costs may enable the company to achieve a dominant position in a very short time. This is further enhanced when a patent or other intellectual property right grants one competitor the exclusive power to exploit a particular innovation in a particular market. However, in the digital economy, many networks operate simultaneously, with the result that in many cases competition in a monopolized market may be influenced by other markets, which combined with the reduced entry barriers, can moderate monopoly power in the first market. For example, a dominant ecommerce company can be impacted by the introduction of a new digital payment system, leading the way for enhancement and transaction for another ecommerce to thrive.

Ecommerce is Semiconductor Powered

E-commerce typically uses the power of semiconductors for at least a part of a transaction’s life cycle although it may also use other technologies such as e-mail for processing of transactions, accessibility and customer interaction, information exchange, and personalization, one-way or one-to-one marketing. Ecommerce businesses thus typically have more digital intangibles and are more computer driven than others.
Mobility of Intangibles: The computer driven processes provide mobility in the business. The investment in and development of intangibles is a core contributor to value creation and economic growth for ecommerce companies. Ecommerce platforms develop a multi-layer digital activity to manage a logistic platform including warehouses and shipping capacity. As businesses evolve, the relative importance of these intangibles frequently grows, resulting in further concentration of value in the intangibles. Under existing tax laws, the rights to those intangible assets can often be easily assigned and transferred among associated enterprises, with the result that the legal ownership of the assets may be separated from the activities that resulted in the development of those assets.
Volatility: Technological progress has led to progress in miniaturization and a downward trend in the cost of computing power. In addition, neither an Internet end user nor in many cases the service provider are required to pay a marginal price for using the network. These factors have combined to foster innovation and the constant development of new business models. As a result, in short periods of time, companies that appeared to control a substantial part of the market and enjoyed a dominant position for a short period of time have found themselves rapidly losing market share to challengers that built their businesses on more powerful technology, a more attractive value proposal, or a more sustainable business model.

Ecommerce is Demand Focused

Another unique identifier for ecommerce is that it is generally demand focused unlike the traditional commerce which is supply focused.

  1. The supply focused process of the ecommerce helps minimize the cost incurred on the middlemen (wholesalers, retailers, consignee etc.), overhead and inventory.
  2. Ecommerce is a data driven industry. Relevant demand side information helps the organization to enjoy greater profits by increasing sales, cutting cost and streamlining operating processes to match the demand side.
  3. Unlike traditional commerce, ecommerce can implement rich content, information and personalization on a wide scale, through demand side information, that helps to push the profitability of the enterprise.

Mobility of Business: Improved telecommunications, information management software, and personal computing have significantly decreased the cost of organizing and coordinating complex activities over long distances. As a result, businesses are increasingly able to manage their global operations on an integrated basis from a central location that may be removed geographically from both the locations in which the operations are carried out and the locations in which their suppliers or customers are located.
Multi Sided Business Model: The ecommerce business features two prominent categories of multi-sided business models. First, a business can operate several applications that provide complementary services. This creates two types of synergy: on the one hand, the various activities pool their resources such as executable code, content, or user data; on the other hand, the activities may be put into a package that is more attractive for users (e.g. Refunds, Last Mile Delivery, Integration of Payment Systems etc.). Second, vertical platform models are used to make resources available for third-party developers so as to attract their creativity as part of open innovation strategies (e.g. API access to developers). A platform is often the result of the large-scale development of an application that gets commoditised.

Ecommerce is Universally Standardized

One of the most essential features of an ecommerce business is the universal acceptability of the platform. Of course the user’s access to the platform is customized to his preference with targeted ads, looks and feel, but due to the sheer scale and ubiquitous nature of the ecommerce platform, these again are mostly, if not completely, computer driven decisions. Unlike in traditional commerce, it is easy to establish and maintain standard practices in ecommerce. Maintaining global standards helps the users of an ecommerce website to use the website efficiently. So, although both the Amazon Platform and Costco Platform could be categorized as ecommerce, there certainly is a difference between them as Costco Platform is accessible by members only for a specific periodic membership fee.
Data Reliance: The standardization of the functions is essential in ecommerce as the industry heavily relies on the data. It is common in the digital economy for businesses to collect data about their customers, suppliers, and operations. For example, the use of a product or service by a user may provide data about the user that has value to the business as an input either in improving existing products and services or in providing products and services to another group of customers.

Ecommerce follows end-to-end relationship

Commercial relationships can be Business-to-Business, Business-to-Consumer or Consumer-to-Consumer. Although both the traditional commerce and ecommerce follow both the models, the key difference is the involvement of the middlemen in the business. Ecommerce mostly, if not wholly, follows the end-to-end relationship whereas in traditional commerce there is the involvement of a lot of middlemen in both the vertical and linear chain of the commerce.
Network Effects: Network effects refer to the fact that decisions of users may have a direct impact on the benefit received by other users. For example, a widely-adopted operating system will generally have a larger amount of software written for it, resulting in a better user experience. These effects are known as positive externalities, meaning situations in which the welfare of a person is improved by the actions of other persons, without explicit compensation. These network effects are an important feature of many businesses in the ecommerce industry. These are reflected in the company’s goodwill, product reviews, affiliate programs, merchant enrollment and so on.

But ecommerce is only a component of ICT driven “Digital Economy”

Definitions on Ecommerce

“Ecommerce” is a part of the “Digital Economy”. The report titled Addressing the Tax Challenges of the Digital Economy within Base Erosion and Profit Shifting Project of OECD has categorized the Digital Economy into a non-exhaustive list: Ecommerce, Online Advertising, Cloud Computing, App Stores, Payment Services, High Frequency Trading, Participative/Collaborative Networks, Sharing Platforms, Content Networks and Virtual Currencies. The report also analyzes a number of broader tax challenges raised by the digital economy, and discusses potential options to address them.

OECD

Reference to the OECD’s Report: Electronic commerce, or e-commerce, has been defined broadly by the OECD Working Party on Indicators for the Information Society as “the sale or purchase of goods or services, conducted over computer networks by methods specifically designed for the purpose of receiving or placing of orders. The goods or services are ordered by those methods, but the payment and the ultimate delivery of the goods or service do not have to be conducted online. An e-commerce transaction can be between enterprises, households, individuals, governments, and other public or private organizations” (OECD, 2011).
E-commerce can be used either to facilitate the ordering of goods or services that are then delivered through conventional channels (indirect or offline e-commerce) or to order and deliver goods or services completely electronically (direct or on-line e-commerce). Although e-commerce covers a broad array of businesses, this section provides an illustration of some of the more prominent types:

  1. Business to Business Model:
    • online versions of traditional transactions in which a wholesaler purchases consignments of goods online, which it then sells to consumers from retail outlets
    • provision of goods or services to support other businesses, including, among others:
      • logistics services such as transportation, warehousing, and distribution;
      • application service providers offering deployment, hosting, and management of packaged software from a central facility;
      • outsourcing of support functions for e-commerce, such as web-hosting, security, and customer care solutions;
      • auction solutions services for the operation and maintenance of real-time auctions via the Internet;
      • content management services, for the facilitation of website content management and delivery; and
      • web-based commerce enablers that provide automated online purchasing capabilities.
  2. Business to Consumer Model
    • Pureplay Model: Online vendors with no physical stores or offline presence
    • Omnichannel Model / WAMBAM Model
      • Click-and-Mortar Model: Businesses that supplement their existing consumer-facing business with online sales
      • Click-and-Collect: Business that allows customers to place online orders
      • and collect them at the stores
      • Click-and-Mold: Manufacturers that use online business to allow customers to order and customize directly
  3. Consumer to Consumer Model
    • auctions facilitated at a portal that allows online bidding on the items being sold;
    • peer-to-peer systems allowing sharing of files between users;
    • classified ads portals providing an interactive, online marketplace allowing negotiation between buyers and sellers
Important Question #1

Question: What constitutes the “method specifically designed for the purpose of receiving or placing orders”?
Answer: OECD’s report has offered comments regarding this. To be included in the methods, are orders made over the web, extranet or electronic data interchange. But this excludes orders made by telephone calls, facsimile or manually typed e-mail. The list offered in the OECD’s report is only indicative. Thus this should be understood to mean where the orders are received, analyzed and processed through the use of a computer or automated process, with little to no human intervention. So this safely excludes the services provided through emails or online meetings or other digitally accessible media that are negotiated with human intervention.

Important Question #2

The digital economy has given rise to a number of new business models. Although many of these models have parallels in traditional business, modern advances in technology have made it possible to conduct many types of business at substantially greater scale and over longer distances than was previously possible. The OECD report has discussed the various prominent examples of Digital Economy using a non-exhaustive list: Ecommerce, Online Advertising, Cloud Computing, App Stores, Payment Services, High Frequency Trading, Participative/Collaborative Networks, Sharing Platforms, Content Networks and Virtual Currencies. The report also analyzes a number of broader tax challenges raised by the digital economy, and discusses potential options to address them.
Question: Why did the OECD’s report attempt to categorize the various elements of the Digital Economy although some of these business models do complement and work together with another model in most cases? (for example, payment services could be described under e-commerce or under cloud computing).
Answer: Firstly, the report discusses that these business models (listed above) are by no means exhaustive. Indeed, just as innovation in the digital economy allows the rapid development of new business models, it can also quickly cause existing businesses to become obsolete.

  1. The need for the categorization of the business model under digital economy is to dissect these models and implement separate and targeted tax/revenue and laws strategically to regulate each facet of the rapidly growing and changing digital economy.
  2. Another reason for the categorization is that some models of the digital economy have their parallels in the traditional economy of commerce, and thus existing laws are adequate enough to regulate those specific unique business models.
  3. Another reason for the categorization of the models is that some models of the digital economy like advertisement, payment services, high frequency trading and virtual currencies are already being regulated by the existing laws, so there is a need for the demarcation of the regulated and unregulated models of digital economy.
Important Question #3

Question: Ecommerce means the sale or purchase of goods or services, conducted over computer networks by methods specifically designed for the purpose of receiving or placing of orders. If so, what “goods or services” fall into ecommerce and what does not?
Answer: There is not a clear distinction as such in the OECD’s report. Mainly because this needs to be decided based on the fact whether the transaction qualifies as an ecommerce transaction or not. We have learnt from the OECD’s definition of ecommerce that:

  1. Ecommerce means the sales/purchase of goods/services, and
  2. Ecommerce is conducted over computer network, and
  3. The computer network for the ecommerce is specifically designed for the purpose of receiving/placing orders.

These criteria tests need to be applied to ascertain whether the particular transaction is under the purview of the ecommerce or not. Examples:

  • When a user proceeds to buy the standardized service of Google Drive Storage or AWS Transparent Pricing Calculator where the pricing for each tier/service is clearly pre-determined and set, this qualifies as an ecommerce transaction.
  • When a buyer places the order to buy from the ecommerce platform like sastodeal.com, the contract for purchase/sale of the goods will be made between the buyer and seller (sastodeal being the ecommerce platform provider), this qualifies as an ecommerce transaction.
  • When a buyer requests for a quote like getting a quote for machinery from JCB, the request gets through to the sales representative and a quote as per your needs are sent to you after further inquiries. This does not constitute an ecommerce because the order has not been placed in the first place and secondly there is manual intervention before the quote gets through.
  • When a customer requests for the quote to the consultant submitting his propositions and after agreeing to the quote provided by the consultant, the consultancy services are delivered through video meeting, this doesn’t constitute ecommerce as the quote is provided by the consultant through email/other digital means but with human intervention and also the services are provided through emails or online meetings or other digitally accessible media with human intervention. Since professional services are generally quoted for and delivered to match the client’s specific needs, it usually doesn’t fall under the ecommerce transaction as there is no scope for ubiquity and standardization (as discussed above).

WTO

Reference to the WTO Report: As per the report, Electronic commerce, or e-commerce, is defined as the “production, distribution, marketing, sale or delivery of goods and services by electronic means”. An e‑commerce transaction can be between enterprises, households, individuals, governments and other public or private organizations.

The definition received from WTO is quite wide and could be a hangover of the use of the internet for buying and selling standardized goods/services during the early days of the internet in the 1990s. The scope, models and the business covered through the digital means and the concept of ecommerce has changed drastically since then, requiring an updated and revised definition of the same. The issues in this definition are similar to the issues we will be discussing just below in the definition offered by the proposed ecommerce bill by the Ministry of Industry Commerce and Supply in Nepal.

Proposed Ecommerce Bill

The Ministry of Industry Commerce and Supply issued a draft bill “Bill regulating Electronic Business 2077” for consultation on 2077/09/14. The definition of the ecommerce under Section 2(g) of the bill provides the following definition for ecommerce:
In Nepali Text: “विद्युतीय व्यापार” भन्नाले इन्टरनेट वा कम्प्यूटर सञ्जालका अन्य विद्युतीय प्रणाली मार्फत कुनै वस्तु वा सेवाको खरिद वा बिक्री गर्ने प्रक्रिया सम्झनु पर्छ र सो शब्दले व्यापारिक कारोबारका शर्त बमोजिम हुने विद्युतीय रकम हस्तान्तरण, डेटा स्थानान्तरण, वस्तु वा सेवाको आपूर्ति, लिज, हायरपर्चेज, सट्टापट्टा वा विद्युतीय माध्यमबाट प्रदान गर्ने पेशागत सेवा वा अन्य सेवा समेतलाई जनाउँछ ।
In English Text: Electronic commerce means the process of purchase or sale of any goods or services via internet or other electronic system of computer network, and this phrase also refers to electronic amount transfer, data transfer, supplies of goods and services, lease, hire purchase, exchange or professional services or other services provided via electronic platforms.
The main problems with this purposed definition of ecommerce:

  • Unlike the OECD’s report as discussed this does not distinguish the ecommerce and other models of the business existing within the industry of digital economy.
  • Under this definition, all transactions of sales and purchase transactions made through the electronic system or computer network does qualify to be recognized as ecommerce.
  • Under this all platforms of sales/purchase whether or not specifically designed for the purpose of receiving/placing orders would qualify as an ecommerce transaction.

We will discuss in detail regarding the issue in the later part of this post.

Ecommerce in Nepal

Introduction

The global e-commerce industry is in trillions and is growing faster than ever. In Nepal ecommerce has been growing and has stemmed from the motivation to simplify and perform commerce or business online with the intention of addressing the needs of customers, vendors and enterprises to deliver goods and services in a short time accompanied with reduced cost.

With the popularity of the internet and consumerism in Nepal, there has been a drastic boom in e-commerce and customers and companies have developed interest in this digital business. Hence, in the present context in Nepal, business strategy and operations nowadays have changed in a way to adopt e-commerce as a secondary source of business or many of the companies have considered online trading as primary too. Ecommerce in Nepal has been able to cover embrace all forms of ecommerce activities like third party business-to-business, customer-to-customer sales, business-to-customer.

The process of buying and selling involves collecting and using demographic data via social media or web contacts and the internet access. Thus the ecommerce business in Nepal has also been a catalyst to drive the development and progress of other third-party applications or communities like online banking platform, mobile and internet connection, electronic data interchange, digital literacy and has improved overall attitude on ecommerce and consumerism in Nepal. This has now paved the way for easy and effective ecommerce with low frictions.

Ecommerce Players in Nepal

Currently organized for formal ecommerce has been observing significant improvement in the share of the market transactions in Nepal. Much of this has been attributed to the improvement in the digital literacy and comfort obtained by Nepalese during the COVID lockdown which has significantly propelled the progress of the ecommerce sector in Nepal.

Unorganized ecommerce has also been flourishing in Nepal especially due to the lack of methods to import consumer goods directly from foreign countries into Nepal. Informal/Social E-commerce through platforms such as Facebook and Instagram has led to the surge in the numbers of the informal ecommerce sector. This has been pointed out regularly as an important problem to be resolved by the proposed Ecommerce Bill in Nepal as this has been leading to negative externalities, loss of tax revenues and also unjust advantage of the informal sectors over the formal ones.

Some of the full fledged formal sectors of ecommerce sectors Nepal are listed below. The list also contains the major enterprises from the digital economy existing in Nepal as they also do function complementing and facilitating the ecommerce industry in Nepal.

  1. Ecommerce
    • Business to Business: B2B eCommerce is in a nascent stage in Nepal.
    • Business to Customer: Daraz, Sastodeal, Foodmandu
    • Consumer to Consumer: Hamrobazar
    • Cross-border Ecommerce: Nepalis cannot yet order foreign ecommerce because foreign exchange is tightly regulated and only dollar cards can be used to make payment in foreign currency which is not widely accessible by all Nepalese. Some ecommerce like Sastodeal, maintain and deliver merchandise ordered from Flipkart India but they do not appear to be widely used in Nepal.
  2. Online Advertising: Lone Tree Marketing, Marching Ants
  3. Cloud Computing: Adex Limited, Genese Solution
  4. App Stores: n/a
  5. Payment Services: Fonepay, Khalti, ConnectIPS
  6. High Frequency Trading: n/a
  7. Participative/Collaborative Networks: Wikipedia
  8. Sharing Platforms: Innoventive
  9. Content Networks: YouTube
  10. Virtual Currencies: n/a

Nepal Ecommerce Facts

Reference to Reedsheer Report: The retail market of Nepal is largely unorganized with traditional mom & pop stores accounting for more than 80% of retail sales. The internet penetration is around 45% of the population in Nepal but only 9% of the population shop online, thus providing massive headroom for growth in ecommerce in Nepal. Nepal’s retail ecommerce market is cash heavy, however the pandemic has driven up adoption of digital payments which now contribute around 32% of the payment mix. The retail ecommerce is mainly concentrated in Kathmandu Valley.

Nepal Ecommerce Modus Operandi

Operating Model

Presently the business-to-consumer model dominates the market and we will be discussing below the operating models under the business-to-consumer model. The business-to-business ecommerce in Nepal is at a very nascent stage in Nepal.

Inventory Model

Under this model the ecommerce platforms maintain their own inventory of the goods listed at their platform. The marketplace owner owns the products and also manages the complete end-to-end sales process. The inventory of the goods is owned and sold by the e-commerce entity directly to the customers. Presently, among the key market players in Nepal Sastodeal and Thulo Mall have adopted this model partially for some of their products but marketplace model is mostly prevalent in Nepal. DarazMall however is not an inventory model as it is only the aggregation of the selected/trusted sellers by Daraz. Further, in Nepal FDI in the inventory based model of e-commerce is prohibited under the foreign investment laws, which we will discuss further below. 

Marketplace Model

It is merely an online platform connecting buyers and sellers and has no inventory of its own.

Fulfillment by Ecommerce

Under this fulfillment strategy of the Marketplace Model, the ecommerce platform provider also provides the facility of the Inventory Management, Payment Processing, Shipment and Tracking of the goods. The commission of the ecommerce business in this model could range as high as 30% on the turnover as this obviates the need for the merchant regarding the inventory, payment, shipment, logistics and delivery.

Fulfillment by Merchant

Under this fulfillment strategy of the Marketplace Model, the ecommerce platform only provides the digital platform for the products listed by the merchant. Once the order is confirmed, the merchant is responsible to manage all the aspects of Inventory Management, Payment Processing, Shipment and Tracking of the goods. The ecommerce platform providers only act as an advertising medium under this mode.

Fulfillment Logistics

As discussed above, the fulfillment strategy could be by the ecommerce or by the merchant themselves. Under both models the consignment, shipment, tracking and payment processing is a key challenge. The items are stored in the fulfillment centers and fulfillment centers are located in places closer to the consumer more likely to buy them. Ecommerce platforms in Nepal have inhouse logistics and last mile delivery service or also employ third party delivery service providers, whose concentration have been observed to be 50-50 in Nepal.

How Fulfillment Works?

Before you start selling on ecommerce you should know the basics of the fulfillment process. Once you register for a merchant-ecommerce account you can list items there for sale. You can store the items at your home or warehouse and then deliver them directly to the customer once the order is confirmed. This is called “Fulfillment by Merchant”. Or you can enter them into the ecommerce system and put a label on the item the platform will provide for you. The barcode identifier of the merchant is also placed and stored in the warehouse/fulfillment centers of the ecommerce platform providers. This method is called “Fulfillment by Ecommerce”. Teh ecommerce will store the item and ship it to the customer once it’s purchased they will also hand handle the payment process or any customer service issues if you let them

Logistics Service Providers (LSPs) in Nepal

Reference to Article: Logistics is the cost incurred in the street. The World Bank, on average, estimates the logistics costs make up to 13% of GDP. The countries with least efficient infrastructures could see the cost as high as 25% of GDP. This estimate puts the cost of logistics in Nepal between USD 4 to 7.7 BN (14 -25% of GDP). Some tech enabled Delivery Service Providers (DSPs) in Nepal are:

  1. Trucking
  2. Fulfillment
  3. Hyperlocal

In a more informal manner, Gig workers in Nepal also act as Independent Service Provider (ISPs) for logistics services, who are also known as flex logistics. But the gig economy is not properly regulated in Nepal so this can be expected to have tax and legal issues. We will discuss this further below.

The Thrashios and Dropshippers

The Thrasio-style startups are a new breed of companies that specializes in acquiring fast-growing digital-first brands and scaling their products. First started US startup Thrasio, which made a successful venture by acquiring successful third-party Amazon sellers and giving their founders a lucrative exit and working on the acquired business to scale them up in terms of digital presence, investment, advertisement and affiliations. In the Thrasio-Model the thrasios act as both entrepreneur and venture capitalists, that review, rate, rank, source, acquire and run the small businesses (generally listed in the ecommerce platform) and with potential brand equity. Thrasio-Model business has begun to crop up in India (e.g. Mensa) but Nepal’s ecommerce market and scale has not been able to introduce companies under this model yet.

Dropshipping is an order fulfillment method that lets store owners sell directly to consumers without stocking any inventory. When a customer purchases a product from a dropshipping store, a third-party supplier ships it directly to them. The customer pays the retail price you set, you pay the suppliers’ wholesale price, and the rest is profit. You never have to handle products or invest in inventory. At face, the Dropshipping business seems like the entry of middlemen into the end-to-end business model of the ecommerce platforms but Dropshippers have one important contribution to make: Product Research and Advertising to drive the sales. It is a competitive business model, digital ad driven and oftentimes there are many failing stories, because you didn’t choose the product right. The scale of Nepal’s ecommerce platform, affiliate programs, digital ad consumption and nascent state of the fulfillment logistics have not been able to crop this model of business in Nepal yet.

Prime / Subscription Model

We have all heard of Amazon Prime or Costco. Through this model the ecommerce platforms provide specific services to the member-customer for a fixed membership fee. This model consists of a paid subscription service from ecommerce providers which gives users access to additional services otherwise unavailable or available at a premium to other regular customers. Amazon, for example, through this model has been providing their prime customers the facility of early access to products, faster deliveries, video streaming, music, discount offers, amazon drone deliveries and so on. Costco also provides its goods to its member customers at a reduced rate, along with faster deliveries. This form of the subscription based ecommerce model has not yet been introduced in Nepal as yet.

Revenue and Accounting

Revenue Model

The revenue of the ecommerce platform depends on their operating model.

  • Under Inventory Model, the ecommerce platform is basically an etailer and the sales revenue of the sales of the goods under this model is the income of the ecommerce enterprise.
  • Under Marketplace Model, where the orders are fulfilled by the merchant themselves, the ecommerce platform is essentially a provider for the digital presence of the store of the merchant, for which the ecommerce enterprise charges a certain platform providing, marketing and advertising fee to the merchants as a service fee.
  • Under the Marketplace Model, where the orders are fulfilled by the ecommerce enterprise, the ecommerce enterprise charges the fee for inventory management, delivery, platform providing, marketing, shipping and payment processing. Under the cash on delivery option, the payment from end customers are recovered in full by the ecommerce platform, which gets refunded to the merchants, after reducing the ecommerce platform’s charges.

Invoicing

Presently the electronic invoicing in Nepal is such an old and rusty system. The implementation of the Central Billing System by the revenue department has been taking ages and some of the benighted technologies have been fixed in the existing electronic invoicing options. It should have been technology neutral and more accessible by all. The average cost of invoicing solutions for the electronic invoicing are also very costly and the electronic invoicing APIs are made available to the software developers only so inhouse production of the cheap and customized invoicing solution have also not been much explored. The actual system of entering into and exiting from the electronic invoicing option is also very frustrating. This has all led to most merchants resorting to the manual invoicing solution and thus the invoicing mechanism in the ecommerce platforms from the merchant’s side is very ineffective. For further discussion on this topic view my other blog here: Electronic Invoicing in Nepal. The invoicing process in ecommerce is the same as the flow of revenue as it should be. The merchant invoices the customer for the goods and the ecommerce platform invoices the merchant for their services.

Accounting

Accounting and revenue recognition in an ecommerce industry will depend on the nature of the income being generated based on the operating model. If it is retail sales under Inventory Model offered to consumers products through online and physical stores, revenue is recognized when control of the goods is transferred to the customer, which generally occurs upon delivery to a third-party carrier or, in the case of inhouse delivery, to the customer. Under the Marketplace Model, ecommerce offers programs that enable sellers to sell their products in their stores, and fulfill orders through them. Ecommerce platforms are not the seller of record in these transactions. The commissions and any related fulfillment and shipping fees that they earn from these arrangements are recognized when the services are rendered, which generally occurs upon delivery of the related products to a third-party carrier or, in the case of an in-house delivery, to the customer.

Cost of sales of the ecommerce primarily consists of the purchase price of consumer products (under Inventory Model), inbound and outbound shipping costs, including costs related to sortation and delivery centers and where ecommerce enterprise are the transportation service provider, and digital media content costs. Shipping costs to receive products from the suppliers included in their inventory (under Inventory Model) are recognized as cost of sales upon sale of products to the customers. Payment processing and related transaction costs, including those associated with seller transactions, are classified in fulfillment costs.

Fulfillment costs primarily consist of those costs incurred in operating and staffing fulfillment centers, physical stores, and customer service centers, including costs attributable to buying, receiving, inspecting, and warehousing inventories; picking, packaging, and preparing customer orders for shipment, payment processing and related transaction costs, including costs associated with ecommerce’s guarantee for certain seller transactions, responding to inquiries from customers; and supply chain management costs. Fulfillment costs also include amounts paid to third parties that assist them in fulfillment and customer service operations.
Reference: Amazon’s 2020 Annual Report

Reviews and Interaction

Ecommerce platform allows options for the customers and merchants to interact and the customers can post their review for the product. Most ecommerce platforms do not enable verified-purchase reviews to actually post the review as the customer reviewing the product might have obtained the goods from other sources who may want to post the review on the ecommerce platform. This is good to encourage organic review but this also leads to the problem of a slew of fake reviews being dumped in the ecommerce platforms’s product reviews. Fake reviews is a serious crisis. People may post positive reviews on their products or post negative reviews on their competitor’s product. This might not have been a serious issue in Nepal already, but this is a very serious issue in the west. But review manipulation only grows unless checked. It affects both sellers and buyers alike, negatively. It creates false depictions of inferior products; prevents better products from gaining traction and getting into the hands of people that need them; and of course limits your potential for sales as a result. It’s harmful and definitely will be a problem for ecommerce platforms, if it isn’t already, but at scale, it’s much more difficult to manage or fix. I too have come across a few fake reviews in Nepali ecommerce platforms as well.

FDI Company and Retail Business

Under Foreign Investment and Technology Transfer Act 2075, Annex-1 the Retail Business has been listed as an industry where foreign investment is not permissible. This prevents the ecommerce enterprise in Nepal with foreingn investment in Nepal to be involved in Inventory Model ecommerce. This has prevented not just the ecommerce businesses but many other industries from conducting the trade and commerce activity in Nepal.

Thus the ecommerce business with FDI can only operate in the marketplace model but not the inventory model. The marketplace based model of e-commerce means providing an ecommerce platform by an e-commerce entity on a digital and electronic network, acting as a facilitator between the buyer and the seller but not being engaged in the actual purchase/sale of the goods. The authorities argue that these provisions are not against the interest of consumers, but to encourage the fair, competitive and transparent retail business practice in Nepal. The main intention behind such a rule could be to protect the interest of the small mom-n-pop retail business that have low value addition but provide sustainable income to many families in Nepal. When allowed, foreign players could sweep the retail industry as the small retail business cannot be competitive with the big foreign players fighting for generally a small margin on the retail sales.

Another practical issue for the foreign investment based ecommerce companies is that the approval for the foreign investment is provided generally on a single particular objective of the company. This however is not the provision of the law but has been adopted by the regulators in regard to the approval of the foreign investments. Ecommerce businesses by nature work in different facets of the digital economy, viz. ecommerce platform, advertisement, tech enabled logistics and payment services. Thus this issue is an annoyance to the operation of the FDI based companies in Nepal in practice.

Employment and Uberization Issue

See my other blog regarding Outsourcing Organizational Functions that discusses Tactical and Strategic Model of Outsourcing.

The facilitation of fulfillment by the ecommerce through the independent delivery service providers had led to the infamous concern of the “uberization of the labor”, even in Nepal. This will be an issue for the ecommerce industry who manage in house individual delivery service providers as gig-workers. This could also be an issue even if the ecommerce receives the delivery services from the third party delivery service providers, as the ecommerce platform is critically dependent on such third parties and what labor regulation affects them.

The rise of online platforms raises concerns in terms of legal questions about social security and labor law. Since the 2007 financial crisis, there has been an increase in ‘uberization’ of work. As within the company that gives its name to this phenomenon, workers are defined as ‘independent workers’ (with temporary, off-site, autonomous contracts) which challenges the application of labor and occupational health and safety law. As a result, online platforms encourage the flexibilization of jobs and a higher volatility of the labor market, as opposed to traditional companies. Gig economy companies hire self-employed drivers who sign a contract with the digital platform while the way they work is similar to a regular employee statute.

Top Courts in USA, UK and France have already acknowledged that an Uber driver could not qualify as a ‘self-employed’ contractor because: (i) the driver could not build his clientele or set his prices, (ii) the driver could not set his contractual terms, (iii) uber was constantly monitoring the driver’s rate of acceptance, and enforcing log off, warnings etc., (iv) important information like the route destination were being withheld from the driver before accepting the ride. So essentially establishing a relation of a subordinate of the company between the driver and the Uber Company.

Links to the relevant decisions: UK Court Decision: Uber BV v. Aslam and France Court Ruling.

But the gig economy is again one of its own unique kind. Because the gig economy provides flexibility in working, adequate hourly payment, insurances and leaves, managing multiple employment, and the driver can retain their work freedom, it has its own benefits for both the employer and the employee so it may not always be in the favor for the employee to classify gig workers always as “employee”. Similar discussion has been made in the California Court Decision: ABC Test v. Proposition 22, which was later struck down by the California Judge as unconstitutional in Hector v. State of California. But still there is room for discussion regarding this new development.

However, since Labor Laws are more protective in Nepal, this issue could be an issue of statutory interpretation rather than contractual interpretation, despite that the contract clearly provides Uber drivers as independent contractors. If this were the issue in the courts of Nepal, it would likely result in the decision like those made by courts in the UK.

Taxes

Ecommerce also raises questions regarding the international tax concept that allocates jurisdictional tax claims over profits of multinational companies based on physical presence. It raises issues such as: where to tax non-resident e-commerce businesses, how to assess intra-group transactions, how to classify digital goods, how to identify tax payers, and where and how to collect consumption tax, as well as issues of enforcement. Even among developed countries, concerns have been expressed that e-commerce may exacerbate the risk of tax base erosion. Furthermore, the remote supply of digital products by suppliers with no direct or indirect physical presence in the consumer’s jurisdiction presents challenges to value added tax (VAT) systems, as these may often result in no VAT or an inappropriately low amount thereof being collected. This can create competitive pressures on domestic suppliers. Whereas concerns related to tax implications from e-commerce are likely to be more pronounced in countries where the uptake of e-commerce is relatively high, finding ways to address these concerns is of relevance to all countries. More research is needed to fully understand the implications of existing tax regimes on e-commerce and to devise policy options. In all cases, balancing appropriate enforcement with facilitation of e-commerce should be a priority. Multi-stakeholder dialogue is an effective way to negotiate optimal solutions.

However, as of date, this have not been an issue regarding the ecommerce industry in Nepal as the scope of the operation of the Nepalese ecommerce entities have been limited within Nepal and both the Direct Income Taxes and Indirect Value Added Taxes in Nepal are governed by the Federal Government of Nepal, so there aren’t any reason for the provincial authority over the direct and indirect taxes of the ecommerce industry.

See my other blog on taxation on digital economy here in Direct and Indirect Tax on Digital Services.

The Ministry of Industry Commerce and Supply issued a draft bill “Bill regulating Electronic Business 2077” for consultation on 2077/09/14. On the one hand weak legal and regulatory frameworks can result in low levels of trust in online transactions. While barriers caused by legal and regulatory frameworks can be particularly damaging for medium and small enterprises, which are usually less connected, financed or capable than larger firms, especially in developing countries.

While the present legal and regulatory frameworks for ecommerce are scattered in Nepal across various legislations there are some key qualitative indicators needs to be looked at whether the legal framework is capable of regulating the ecommerce business:

  1. Legal framework for electronic transactions,
  2. Legal framework for data protection/privacy online,
  3. Legal framework for consumer protection when purchasing online and
  4. Legal framework for cybercrime prevention.

When considering legal frameworks, a key question for policy makers is to ascertain whether existing laws and regulations allow for a “level playing field” between ecommerce and regular trade. From a trade policy perspective, there may be barriers related to market access, technical standards, regulations and various border measures. Both internal supplies, imports and exports may be hampered if enterprises in a country are unable to use certain online platforms and marketplaces for various reasons.

The need for Act Regulating Ecommerce

Despite being scattered Nepal does have some existing laws that do regulate the ecommerce business. As ecommerce business mostly are the digitally driven parallel of a traditional commerce, most laws and rules regulating the traditional ecommerce are also relevant in the context of the ecommerce business. Thus there might be a need for some directives to guide and instruct the ecommerce businesses in Nepal rather than introduction of new legislation. But of course, the government’s initiative to frame the ecommerce legislation for Nepal is certainly welcome.

Present Legislations guiding ecommerce in Nepal

Electronic Transactions and Evidence Laws

Reference: Electronic Transaction Act 2063, Evidence Act 2031
Electronic Transaction Act regulates the matters relating to electronic record, e-signature and contract executed through such means. This Electronic Transaction Act 2063 has been proposed to be replaced by the new bill Information Technology Act 2075. Recently, the latest amendment of the Evidence Act also has validated the e-signatures and agreements made through email exchanges.

Consumer Protection Laws

Reference: Consumer Protection Act 2075, Essential Service Operation Act 2014, Essential Goods Protection Act 2012, Essential Supplies Regulation Act 2017, Food Act 2023
Consumer protection has become more complex in the digital era, including for vulnerable consumers. At the same time, new issues have emerged, for example in relation to online apps and services offered for “free” in exchange for gaining access to the user’s personal data. More generally, cross-border e-commerce challenges the enforcement of national and regional consumer protection regimes, particularly for product safety and recalls. The existing Consumer Protection Act covers the provisions relating to the protection of the end consumers engaging in transaction of goods and services.

Competition and Marketing Laws

Reference: Competition Promotion and Market Protection Act 2063, Black Market and Other Social Offense and Penalty Act 2032
Competition policy also comes to the fore with respect to e-commerce. A range of different competition dynamics have emerged for online sellers as well as other actors in the brick-and-mortar space, including for online platforms. Issues around whether traditional antitrust enforcement mechanisms are fit for the digital age have become more important, including with respect to possible horizontal collusion. The role that algorithms may play in facilitating such collusion has also been raised in competition policy circles.

Advertisement and Direct Selling Laws

Reference: Advertisement Act 2076, Direct Sales Act 2074
Advertising law encompasses laws and rules that govern how products can be advertised, including the content of ads as well as when and how they reach consumers. Advertising law involves antitrust, consumer information, communications, technology, and intellectual property law, specifically the use of trademarks and copyrights.

Company and Tax Laws

Reference: Companies Act 2063, Income Tax Act 2058, Value Added Tax Act 2052, Customs Act 2064
Company and Tax laws challenges have moved to the top of the global agenda, especially with respect to the administration and taxation of intangible assets, as new digital business models, including for e-commerce, have raised issues around how and where value is created, particularly through emerging opportunities for data collection and user engagement. As intangible assets are highly mobile, new e-commerce business models further test existing income companies laws, taxation systems, which are based predominantly on physical factors to determine a taxable presence and allocation of income.

Privacy Laws

Reference: Individual Privacy Act 2075
The existing Individual Privacy Act deals with protection of individual data. Further the Act has specifically regulated the collection, use, and protection of personal data.

Environment Protection

Reference: Environment Protection Act 2076
Environmental policy may also affect e-commerce, although the net effect is not clear-cut. On the one hand, e-commerce can reduce transportation use (and the associated negative environmental effects) to brick-and-mortar stores, as well as decrease pressure on physical infrastructures (e.g. lower electricity use). On the other hand, increased residential deliveries do not benefit from the same scale effects as professional bulk purchases, reducing transportation efficiency, while increased e-commerce may also increase e-waste. E-commerce can also raise issues with national, regional, and local environmental protection policy regimes

Country Civil Codes

Reference: National Civil Code 2074
The matters relating to the contract are regulated under the National Civil Code.

Other Relevant Regulations

NRB Circulars and Guidelines
The payment gateway services are regulated by Nepal Rastra Bank. Such entities are also considered an important component of the digital economy and complement the ecommerce business. NRB is the regulatory authority of payment transactions. Thus NRB issues circulars and notices regarding the limit on amount and frequency of the transaction to be made using the internet banking, mobile wallet, digital wallets, etc.

Trade Policies
Reference: Nepal – Trade Agreements. Trade policy represents another important e-commerce policy area. As more trade occurs in digitally-enabled services and bundles of goods and services, the blurring of boundaries between goods and services can result in legal and regulatory uncertainties for firms participating in cross-border e-commerce under existing multilateral and bilateral trade agreements that rely on rules based on the traditional distinction between goods and services. Rules regarding cross-border data flows also impact e-commerce.

Public Procurement Laws
Reference: Public Procurement Act 2063. Rules regarding the public procurement laws are also relevant to ecommerce business operating in business-to-government ecommerce model.

Multimodal Transportation Laws
Reference: Multimodal Transportation Act 2063. Ecommerce operating in more than one country and fulfilling the logistics from one country to other need to adhere to the regulation under the Multimodal Transportation Act.

Standard Measurement Laws
Reference: Standard Measurement and Weight Act 2025. This Act aims to maintain and introduce the standard measurement and weights based on the metric system all over Nepal regarding measurement, weighing, seal packages and commercial weight measures.

Global Practice on Ecommerce Laws

UNCITRAL Model Law on Ecommerce

Reference: Electronic Commerce | United Nations Commission On International Trade Law
United Nations Commission On International Trade Law (UNCITRAL) has prepared a suite of legislative texts to enable and facilitate the use of electronic means to engage in commercial activities, which have been adopted in over 100 States. The most widely enacted text is the UNCITRAL Model Law on Electronic Commerce (1996), which establishes rules for the equal treatment of electronic and paper-based information, as well as the legal recognition of electronic transactions and processes, based on the fundamental principles of non-discrimination against the use of electronic means, functional equivalence and technology neutrality. The UNCITRAL Model Law on Electronic Signatures (2001) provides additional rules on the use of electronic signatures.

The model law relies on the following major principles for the guide to preparation or the enactment of the ecommerce regulation:

  1. Principle of non-discrimination: A communication shall not be denied validity on the sole ground that it is in electronic form.”
    • Easier to implement in the private sector than in the public sector.
    • Typically needs explicit legislation when applied to customs operations.
    • Once the law enables the submission of electronic information, and the infrastructure is in place, a business culture needs to be established (through in-house training, etc.).
  2. Principle of functional equivalence : Purposes and functions of paper-based requirements may be satisfied with electronic communications, provided certain criteria are met.”
    • Functional equivalent notions should be set forth the general law on electronic transactions.
    • For instance, the “written form” requirement is met if the electronic communication is accessible for future reference. As a result, all references to “writing”, “original” and “signature” contained in customs law are satisfied according to the requirements of the electronic transactions law.
  3. Principle of technological neutrality: Legislation shall not impose the use of or otherwise favor any specific technology.
    • Open to future developments.
    • Possibility to have more detailed provisions on technology requirements in implementing regulations.
    • Little interest in the private sector because of costs.
    • Possible barrier to mutual recognition due to the use of national encryption standards.
    • But some operators want better quality data from commercial documents. Practical solution: distinguish data submission and data storage /analysis, professional and occasional users, etc.

The legislative study by the UNCITRAL also identifies major challenges in the implementation of the e-signatures, a key component for the facilitation of ecommerce. Some of them being:

    • Number of different rules for electronic signatures: – In the same jurisdiction, private vs. public sector, and in different branches of the public sector; – Across borders.
    • Choices often driven by security concerns but could hinder ecommerce and trade facilitation.
    • Excessive costs and redundancy of systems.
    • Cross-border recognition of electronic signatures on a technology-neutral basis is mandated by Free Trade Agreements. However, bilateral e-signatures recognition agreements are rare. At the multilateral level, article 9(3) United Nations Convention on the Use of Electronic Communications in International Contracts.

Ecommerce Laws in India and USA

Even in the major ecommerce driven countries like USA and India, as far as regulatory framework governing ecommerce activities is concerned, there are no dedicated e-commerce laws even in those countries. It has been accepted that the scattered consumer affairs, information technology, commerce, and data privacy laws are adequate to regulate the ecommerce business, both in India and USA.

However, even these countries have tried to implement a directive to complement the scattered legal provisions and make them available as a single point to various segments of the e-commerce value chain. But when the governments tried to come up with the policy on e-commerce there often are the criticism of the regressive approach taken by the government and not being able to keep up with the fast changing ecommerce landscape. The proposals submitted generally tend to include almost everything under the sun, including physical trade, online trade, payment systems, consumer protections, telecommunication networks, spam mail and source code, to name a few, as ecommerce, and it absolutely seems absurd at times.

So we are in need of the uniformity and coherence in the existing legislations, improvement in information technology laws and proper and adequate enforcement of the consumer laws and civil codes, and come up with the directive to guide the ecommerce industry rather than the proposed ecommerce bill. But of course any efforts made by the government is welcome, as it indicates the commitment of the government to improve and strengthen ecommerce sector but consultation with experts and market players should be a priority.

Issues Identified in the Proposed Ecommerce Bill 2077

The Ministry of Industry Commerce and Supply issued a draft bill named “Bill regulating Electronic Business 2077” for consultation on 2077/09/14. Here we will be discussing the major problematic issues identified in the proposed bill. Link to the Proposed Bill:
In Nepali Text: Bill regulating Electronic Business 2077 (Nepali)
In English Text: Bill regulating Electronic Business 2077 (English)

Definition of ecommerce u/s 2

Under Section 2(g) the Act states: “Electronic commerce” means the process of purchase or sale of any goods or services via internet or other electronic system of computer network, and this phrase also refers to electronic amount transfer, data transfer, supplies of goods and services, lease, hire purchase, exchange or professional services or other services provided via electronic platforms.
Comments: There are some key issues to be addressed in this definition. 

Issue One: Not everything under the sun is ecommerce

Let’s take the definition provided by OECD as an example. It defines ecommerce as the sale or purchase of goods or services, conducted over computer networks by methods specifically designed for the purpose of receiving or placing of orders. We can learn from the OECD’s definition of ecommerce that:

  • Ecommerce means the sales/purchase of goods/services, and
  • Ecommerce is conducted over computer network, and
  • The computer network for the ecommerce is specifically designed for the purpose of receiving/placing orders.

When these criteria are not applied to ascertain whether the particular transaction is under the purview of the ecommerce or not, any and everything done digitally could potentially be defined as an ecommerce.

Issue Two: The Bill doesn’t attempt to distinguish the different facets of the digital economy

The Bill doesn’t attempt to distinguish the different facets of the digital economy. Obviously ecommerce and payment services are not the same. Although they may complement each other, the traditional alternative to ecommerce is retail shops and that for payment service provider is the bank. It’s a completely different industry. OECD’s report has tried to provide an indicative categorization of the different facets of the digital economy, ecommerce being one of them. OECD lists: Ecommerce, Online Advertising, Cloud Computing, App Stores, Payment Services, High Frequency Trading, Participative/Collaborative Networks, Sharing Platforms, Content Networks and Virtual Currencies as a part of the broader digital economy. 

Listing requirement u/s 3

Under Section 3 of the Act, anyone who wishes to deal in ecommerce business in Nepal needs to be enlisted with the Department and acquire a registration number (indicative of license number) to operate. This business operation license needs to be renewed every year, according to the draft bill.

Comments: The implication is that e-commerce can only take place through a government-prescribed portal. It is a rather outmoded approach and adds yet another registration requirement for the ecommerce. Why can’t ecommerce companies simply operate their own websites/mobile apps and set up a digital store for selling goods and services.
Similarly, this provision also seems to require the end-to-end consumer-to-consumer dealing like in eBay or Hamrobazar to be listed to be able to deal in ecommerce business. Using sites like eBay or Hamrobazar can have lots of positive externalities to improve the ecommerce sector but it should always be a commercial decision. Once it is a legal requirement to register, the participation and benefits from those platforms would significantly diminish.
Further, under Section 1 of the Act, the scope of the Act extends to the foreign ecommerce service providers. Even foreign ecommerce service providers are required to enlist under Section 3 of the Act. So this enlisting requirement applies to all, including the foregin ecommerce service providers as well who may not have taxable presence in Nepal.
Similarly, the ecommerce platforms provided by facebook, instagram have also been a catalyst to drive the ecommerce success in the grassroots. The Act is not clear whether those platforms do qualify as the ecommerce platform, whether the merchant needs to comply with the commercial platform or the facebook and instagram themselves. Perhaps some threshold should be set where the Act would not apply to small merchants registered and operating in Nepal through ecommerce? Or something like that as appropriate.

Web platform and SSL certificates requirement u/s 4

Section 4 of the Act provides the requirement of establishing the web platform of the ecommerce business. It also provides that Secured Socket Layer (SSL) certificate of electronic systems shall have to be established in the electronic platform.

Comments: Foodmandu, an e-commerce company providing food delivery service, encountered a data breach in March 2020. The company detected a cyber-attack by a hacker which resulted in unauthorized access to customer data. With the emergence and adaptation of e-commerce by customers as well as business enterprises, there is, has been and will always be a concern regarding the e-commerce security i.e., how secure it is to perform transactions and operations through e-commerce. 
Going back to the draft bill, the web platform requirement is also, again, a redundant requirement. Ecommerce by definition is a web platform for buying and selling goods and services. Further, SSL has already been deprecated. Transport Layer Security (TLS), the successor of the now-deprecated Secure Sockets Layer (SSL), is a cryptographic protocol designed to provide communications security over a computer network. SSL is no longer viewed as secure. This is a reflection of a wider problem. Just as the model ecommerce law by UNCITRAL intended, the Act should not prescribe which technology is to be used; instead, it should state the objective (in this case, that all transactions shall remain secure; defined as private between the customer and the e-commerce service, and authenticatable so that neither party can deny that the transaction took place). It should then specify a mechanism for determining that this regulation has been met. This could be with reference to the standards set by the Nepal Ministry of Commerce, or by the Nepali cybersecurity task force, if one exists. Alternatively, international standards can be referenced, such as those defined by National Institute of Standards and Technology (NIST).

Execution of Contract u/s 7

Section 7 of the Act provides that when any goods and services are demanded made by a purchaser from businessperson by adopting e-commerce operation method under Section 6, if the businessperson accepts to provide such goods or services, a contract shall be deemed to have been entered into between purchaser and seller via electronic platform and liability shall be deemed to have been created as per the contract.

Comments: Similar provision for the validity of the digital signature existes in the prevalent Electronic Transaction Laws of Nepal. Since the digital transactions already have legal standings in the Civil Code and Electronic Transaction Laws of Nepal, this provision could be referenced around such existing legislation.
Further, Section 7(3) of the Act has stated that the purchaser can cancel his demand before such goods or services are dispatched or before commencing to provide the services and the amount will be refunded to him. This allows for better consumer rights but the ecommerce provider might already have incurred scheduling and sourcing costs in relation to the demand so the provision could be improved by requiring the seller/platform by disclosing that the scheduling has begun and cancellation will lead to some fixed fees, clearly and unambiguously in the website, to prevent resource drain on the ecommerce enterprises’ side.

Section 8(1) has allowed for the payment modalities to differ based on the agreement between the buyer and seller. This will be relevant for parties engaged in the B2B commerce with separate credit terms. But Section 8(3) of the Act states that if the purchaser transfers the amount by submitting cash or via electronic device possessed by him or her, the amount shall be deemed to have been lawfully transferred.

Comments: Section 8(3) of the Act implicitly assumes the legal tender. As of date the interwallet and interbank payments in Nepal are not very common so this is an issue when the customer wants to make the payment through means which is not supported by the ecommerce enterprise. This again could be within the assumption of the government that after the introduction of Unified Payment Interface in Nepal, this certainly will not be an issue but to make this provision neutral, perhaps, the Act should consider setting a requirement that the business must list all forms of payment they will accept, clearly and unambiguously throughout their website. Then it remains the responsibility of the customer to ensure they are able to offer one of the acceptable payment mechanisms.

Location and transfer of goods and services u/s 9

Section 9 of the states that, as per the contract entered into with the purchaser, the businessperson shall have to submit to or provide him or her, or his or her agent by delivering the demanded goods or services to the place determined by the purchaser at the time of entering into the contract and within the period or timeline.

Comments: The provision should acknowledge that the ecommerce enterprise may limit the delivery of the goods or service based on the location of the purchaser. Of course this is a commercial decision depending on the logistics, supply network, availability of the fulfillment stores, availability of the modes of payment and so on. Perhaps, the Act should require the ecommerce enterprise to clearly and unambiguously disclose those things during the check-out-session and also disclose the different delivery time and cost depending on the location selected by the purchaser.

Responsibilities of businessperson, intermediaries and transporter u/s 11, 12 and 13

Section 11, 12 and 13 of the Act provides for the various responsibilities of the businessperson, intermediaries and the transporter of the goods.

Comments: Ecommerce platforms generally set Terms and Conditions and these intend to limit the responsibility and liability of the ecommerce platform providers. They generally set the conditions as follows: Disclaimers, Indemnity, Creation of Contract and so on. Ecommerce platform also sets the Returns Policies. As expected, return policies are specific to the category of the product. Ecommerce platforms generally limit their liabilities with these Terms, Conditions, Disclaimers and Policies.
Numerous courts in numerous decisions have held that ecommerce platform providers cannot be held liable as a seller of products from third-party vendors. The new proposed Ecommerce Bill also doesn’t buck the trend. However, some consumer rights activists have been pushing the government to introduce regulation to require ecommerce platform providers to take responsibility for their products and services. Their main observation is that “If the company says that they only work as a mediator between buyers and sellers and does not take any responsibility, then it means that the company is working just as a middleman, which is not allowed by the Competition Promotion and Market Promotion Act 2007.”

However, an important consideration in this equation is that the ecommerce platforms are the service providers to the merchants rather than to the consumers. Services to the consumers is just a form of externality of the digital business, like any other business. It is merchants from whom the ecommerce platform derives their income. Having said this, the proposed bill does allow the customers to return goods of lower quality or faulty goods, damaged, or in unusable condition. If there is an error in the goods or services sold by the intermediary dealer electronically, if the goods sold or handed over are different from what is demanded, or if they cannot be used due to poor quality, such goods may be withdrawn, exchanged, or refunded. The responsibility will be on the mediating businessman. An important aspect that could be included in the proposed bill is regarding digital goods. There is a duty on the platform provider / seller to ensure that they are available to the buyer as the transaction is made; so the platform must be robust enough to ensure that this is the case. 

Complaint Handling u/s 23

Under Section 23 of the Act every businessperson who deals in e-commerce shall have to mention, in his or her electronic platform, the name and address, where contact can be established, of the person who is responsible for hearing the complaint.

Comments: The provision could further the responsiveness of the complaints handling process by requiring the platforms / sellers to review and address the complaint within a certain time period of time. Further an acknowledgement receipt should be provided to the customer via digital means, including a reference number for the complaint which can be used to reference it in future communications for the remedial actions.

Punishment u/s 18

Section 18 of the Act provides for fines and penalties under the Act.

Comments: This section under the punishment section appears to treat ecommerce as a special type of commerce, different to all other types, which is not the case. There are always parallel industries in digital commerce to the industry in traditional commerce. Most of the offenses under the proposed law are also punishable through the other regulations. The regulatory under the Act is the Department of Commerce, Supplies and Consumer Protection of the Government of Nepal.