E-commerce has radically changed the way retailers conduct business and how people shop for the products they both want and need. It has also forced government entities to reconsider the methods they use to tax online retail businesses, in the United States and globally, and China’s e-commerce market is bringing this growing issue to light. Chinese sites may potentially face huge financial woes, and here’s why.
What’s Wrong with e-commerce in China?
The sites themselves are not necessarily to blame-at least not fully. It is actually the sellers using the e-commerce platforms who are not adhering to proper taxation regulations. The Chinese government uses official government invoice papers to document taxes on businesses selling to consumers, but it seems that online vendors most often forego the process of completing these documents and providing them to their customers. It is all too easy for them to get away with this, considering they are conducting business in virtual reality.
The Numbers Don’t Lie
Wang Tian, a representative of the National People’s Congress (NPC), reports that in the year 2012 alone, Chinese e-commerce platforms allowed their vendors to evade an estimated 100 billion RMB (that’s 15 billion American dollars) in tax payments. Alibaba, the nation’s largest e-commerce platform, accounts for roughly one third of that. It is worth noting that the Chinese State of Administration has openly expressed some skepticism in regards to the accuracy of these numbers; however, there is no questioning that there is still a deficit that must be addressed, whether it’s actually a much larger number or not.
Can the Problem Be Solved?
In light of the startling numbers, the Chinese government is brainstorming taxation solutions to work around the e-commerce platform. Sales transactions that occur over the Internet are admittedly difficult to monitor, which is why online commerce might require its own set of specific sales tax regulations, or maybe some other sort of software or stock monitoring device. While there is no current definitive solution, Chinese lawmakers have determined that they must find a way to tax e-commerce platforms in a way that will compensate for the tax shortage without compromising the growth of the industry. It is speculated that new regulations to correct the problem of lost tax revenue in Chinese websites will go into effect sometime this year.
Chinese online business is booming, and the Chinese government seems to be getting cheated out of its just dues in the process. The growth of Chinese sites like Alibaba has spawned a new awareness of certain deficiencies in the government’s taxation process, and these issues must be addressed in a way that ensures both the growth of the e-commerce sector and the efficacy of the tax system. How will China accomplish this daunting task? Only time will tell. In the meantime, Chinese e-commerce giants are at the edge of their seats. Meanwhile, Americans are pensively waiting to find out if they’ll end up paying additional taxes on online goods as well. Seems as though this is a global issue, and it’s not going away anytime soon.
Frederick Baker runs a series of e-commerce sites and is always watching government regulations and trends. Whether you have a small or large site, make sure you check out some payment solutions for Bigcommerce merchants, all designed to make your life a whole lot easier.