Last week, Wuhan’s tax bureau sent a tax bill totalling 4.3 million yuan (around $665 thousand) to Zhou Qinnian. He’s the owner of My One Percent, a shop which sells women’s dresses on Taobao.com.
According to China Radio International, an unnamed official with Wuhan’s tax bureau stated that the tax bill observes China’s tax laws, which require tax to be paid on all trade within China.
There is, however, no specific tax law governing online businesses. The action taken in Wuhan has sparked a fierce debate.
Some fear that the move could lead to higher operating costs for businesses. This, in turn, would likely lead to price rises for consumers, and could even strangle the young, fast-growing Internet shopping market.
There’s no question that the government, like all governments, see a hefty income from the taxing of online shopping transactions.
But will more regulation hurt online businesses?
In California, a new state law requires that all large, out-of-state retailers collect sales tax on online purchases made by their California customers.
The new tax collection requirement is expected to raise around $317 million (around 2 billion yuan) a year for the local government. Before this, consumers didn’t pay tax to the state if online merchants didn’t charge it as part of the sale.
Furthermore, businesses were not required to charge sales tax in states where they did not have a physical presence.
Amazon, along with other online retailers opposed the new measure: “We oppose this bill [because] it is counterproductive,” Amazon wrote to its California business partners.
By not collecting sales tax, Internet retailers such as Amazon had a real price advantage over California’s small businesses, such as booksellers, which have a physical presence in the state.
“You can’t give one segment of retail a 10 percent discount every day. It’s just not fair,” said Bill Dombrowski, president of the California Retailers Association, a major player in a coalition of large and small stores supporting the legislation.
The UK government is also looking to close a tax loophole, which allows online stores to sell products at a discount from Jersey, one of the Channel Island tax havens located off the coast of Normandy, France.
By using this “loophole” online business can sell products more cheaply. It is estimated that the new tax measures could earn the UK government as much as 4 billion pounds (41.7 billion yuan).
The action could result in online retailers raising their prices, thereby hitting consumers.
Supporters of the scheme claim that online companies, by dodging corporation tax, cost the economy dear.
But some consumers have accused the government of hitting spending at a time when the economy is already under pressure. One anonymous online blogger wrote: “With every governing body in the country practically under a mountain of debt, they’re going to turn to e-commerce taxes to fill the gap.”