Rule enforced in 3 districts, covers past years to present
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, a news portal under Beijing-based newspaper Securities Times reported over the weekend.
Currently, Shanghai's Minhang district, Heze, East China's Shandong Province, and Guilin, South China's Guangxi Zhuang Autonomous Region are requiring local Tmall merchants to pay back-taxes dating from when they opened stores on tmall.com, lanjingtmt.com reported on Sunday.
Unidentified merchants were quoted by the report as saying that the taxes on e-commerce will be five times that of taxes levied on their off-line businesses in part due to the additional expenditures on "click farms" - groups that online retailers usually pay to artificially boost their stores' sales volumes in the early stages.
"I heard about this… those who failed to pay taxes have been asked to make supplementary payments of 17 percent of their gross margin [starting from when they opened their businesses] to local authorities," Lu Zhenwang, founder of Shanghai Wanqing Commerce Consulting, told the Global Times on Sunday.
The current move will generate some setbacks on Tmall, though it can cope with the 17 percent tax rate given its current overall 20-30 percent gross margin rate, said Lu.
He also noted that its archrival jd.com, which has a better system of offering electronic invoices than Alibaba, may suffer less than the e-commerce giant amid the move.
Both jd.com and Tmall failed to reply to Global Times inquiries by press time.
While neither of the above-mentioned taxation supervision bodies nor the State Administration of Taxation could be reached for comment outside of office hours, the news spread widely on social networking services, arousing concerns among Tmall merchants in other cities.
A Tmall merchant surnamed Wu in Foshan, South China's Guangdong Province, told the Global Times Sunday that if Guangdong plans to levy taxes on e-commerce businesses and claim overdue taxes, he would close his online store.
"Many merchants around me only have a one-digit gross margin, which means they will surely be unable to afford the taxes, and a store shutdown may be our only choice," said Wu.
Small-scale online retailers should be worried as taxation on China's e-commerce industry will take place sooner or later, said analysts.
"All online merchants, either on Alibaba's marketplaces or on other platforms such as jd.com, will eventually and should be required to pay taxes as off-line retailers do to ensure fairness between online and off-line business," Feng Lin, an analyst at China e-Business Research Center, told the Global Times Sunday.
During this year's legislative and consultative sessions in March, Wang Tian, deputy to the National People's Congress and chairman of Hunan-based supermarket operator Better-Life Commercial Chain Share Co, called for taxation on the e-commerce sector.
"Every year, the nation's online platforms would evade paying taxes amounting to a few hundreds of billions of yuan," Wang was quoted by media reports as saying.
In order to regulate the online shopping market, Zhang Mao, minister of the State Administration for Industry and Commerce, said during a press conference in early March that the administration is pushing forward the legislation of e-commerce laws.
Both Wu, the Tmall merchant, and Feng welcome the e-commerce regulations, but expect governments could roll out some favorable taxation policy to encourage the emerging e-commerce sector.
"It is not wrong to pay taxes, but local governments should make a difference between low-profit e-commerce start-ups and traditional businesses, otherwise there will hardly be any new drive to boost the Chinese economy or local government revenues," said Wu.
China collected 2.71 trillion yuan ($442.7 billion) in taxes in the first quarter of 2015, increasing 3.4 percent year-on-year, slower than the 9.9 percent growth rate in the previous year, according to a statement released by the State Administration of Taxation on April 20.
