How shall we view taxation on online stores?
Recently, taxation authorities in cities in East and South China are in talks with local merchants on China's biggest business-to-customer marketplace tmall.com about possible tax evasion in e-commerce. Although the State Administration of Taxation (SAT) released a document on May 6 to put an end to the tax crackdown, it is not the first time that rumors concerning taxation on online stores have been given out. As early as June 2011, the first personal online store tax receipt of over 4.3 million yuan was issued by SAT of Wuhan City on one Taobao online store.
How shall we view taxation on online stores? Some hold the opinion that online stores have brought about huge employment opportunities. Therefore, the government should take encouragement as the main attitude. What is more, during the
same year, many experts maintained that the behavior of levying taxes on online stores by Wuhan’s local SAT may lead to the movement of many excellent online stores to other cities. Actually, if the taxes to traditional stores are higher than those of online business, then operators would consider doing business online. In a similar way, if taxes need to be paid in Wuhan but not other regions, then many enterprises would be more willing to register outside Wuhan.
It is certain that paying taxes is a legal obligation. The reason why taxes have not been levied on online stores for rather a long time by SAT is not because there is no relevant lawful base, but in my opinion that the administration costs of collecting tax from online stores are much too high.
Over the recent years, the e-business is becoming ever stronger with the development of Internet. Increasing sales volume means there is much more space for levying taxes among it. Considering the fact that the fiscal revenue in China has been declining around the whole year, the possibility of taxation on e-business is bigger. At the beginning of the year, Deutche Bank Group has made the estimation that in the year 2015, China’s fiscal revenue will face the severest challenge since 1981. The increase of governmental total revenue will reduce from 14% in 2014 to 11% in 2015, greatly lower than the average growth of 19% from 2009 to 2013. Last year, the national government revenue only increased by 8.6%, the first time to descend back to single digit times since 1991. The growth rate of the fiscal revenue during the first quarter this year was only about 4%.
When the growth rate of fiscal revenue reduces, it would be a natural thought for taxation authorities to levy taxes in new fields which have the potential to pay taxes in order to complete the tasks they have predetermined at the beginning of the year. One obvious feature of online stores is that every single transaction has been recorded. Levying taxes would much too easy in the commercial fields where turnover taxes are the main body. If levying taxes on individual online stores would have higher costs, the levying taxes in Tmall stores are rather easy.
Although it is legal duty to levy taxes on e-business and some people say that it would be unfair for physical stores if SAT does not do so, meanwhile the negative effects of such behaviors shall be considered. With the rapid development of online shopping, the development of relevant industries have also been boosted with the logistics as an example whose growth rate of employment has far exceeded the general level of the whole nation. Besides, it can be seen in the foreseeable future that e-business will continue its rapid growth. Therefore, shall taxation preferential be provided to the industry that has created huge employment opportunities?
America may well be taken as an example who has passed a law concerning the tax freedom of Internet in 1998. The law forbids any levy of taxes on Internet by the Federal government, states or local governments. Since the formulation of the law, the US congress has for 3 times extended the lawful deadline. Although the Senate House of America has passed the Marketplace Fairness Act in 2013 regulating that enterprises that sell their products through the Internet, mail, telephone or TV shall pay sales taxes, the law has also pointed out that small enterprises that could not reach 1 million dollars a year online can be exempted. According to the current laws of America, only when certain retailer has physical stores in the state hereof can the state government levy sales taxes on it.
If the fact that the costs of Chinese merchants are mainly manifested on turnover taxes is considered, then levying taxes on online businesses will lead to an unexpected result, i.e. online businesses will undertake higher tax costs--- for the reason that offline commodities have the space to evade taxes, but online ones with clearly traceable channels are nowhere to hide.
Published in Southern Metropolis | 2015-5-7
