Government Demands Back-Taxes from Tmall Merchants, Price Increase on the Horizon?

Taxes in China are weird. In practice, plenty companies get away with operating more or less under the table. This is as true in e-commerce as it is anywhere else, but it may be changing. Yesterday, Hebei Province’s tax bureau arranged meetings with 38 major Tmall vendors to demand they pay back-taxes.

The taxes requested apparently include a 17% value-added tax and regular income taxes. This could result in some shops needing to make payments of over $100,000, according to the Guangzhou Daily.

Many net users are worried that the more thorough tax enforcement will result in increased prices across China’s e-commerce sector. Industry insiders worry that with taxes, the increased cost of operating an internet shop will eliminate the meager price advantage e-commerce sites currently have over brick-and-mortar stores.

Of course, internet shops should have been paying taxes all along, but while the laws have always been there, the enforcement has been quite lax. The move to extract back-taxes from major Tmall merchants might indicate a new, more serious enforcement strategy. At the moment, though, it’s only affecting a small percentage of Tmall shops. Whether it’s a fluke or an omen of things to come…well, we’ll just have to wait and see.

[Guangzhou Daily via Sina Tech]