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Taxation to be introduced for China’s e-commerce industry

Taxation to be introduced for China’s e-commerce industry

Staff Reporter 2013-03-19

China’s State Administration of Taxation announced measures for the administration of online invoices on March 7, which include a trial electronic invoicing system. The measures will come into effect from April 1.

The measures are seen by many as a step towards taxing the country’s emerging e-commerce industry, reports Time Weekly in Guangzhou.

The weekly quotes sources saying that online shops which make more than 240,000 yuan (US$38,000) a year will be required to pay taxes.

The measures were formulated at the request of a number of private business leaders, including Wang Tian, chairman of the Better Life retail chain. Wang said at the recent meeting of the National People’s Congress, China’s main parliament, that it was unfair for the country’s bricks-and-mortar stores to be taxed while online stores operate tax-free.

Wang also claimed that online shops operating on Alibaba’s e-commerce platforms alone dodged paying 35 billion yuan (US$5.6 billion) in taxes last year, while overall the country’s online retail outlets had evaded taxes of more than 100 billion yuan (US$16 billion).

Though his claim cannot be verified, online sales in China have grown by 40% during the last decade, and were pegged at 1.2 trillion yuan (US$190 billion) in 2012, about 7% of the country’s total retail sales.

Taobao, one of the country’s leading eBay-like online retail operators which is owned by the Alibaba group, dismissed Wang’s claims, saying that 94% of the stores on its platform recorded annual revenue of less than 240,000 yuan (US$38,000), and were thereby exempt from taxation.

Liu Heng, a professor at the Central University of Finance and Economics in Beijing, lauded the measures as a step forward in protecting the rights of online consumers, because they would now be able to ask for invoices from online sellers.

But Nie Riming, a researcher at the Shanghai Institute of Finance and Law, told the weekly that he opposed the imposition of any new taxes that have not been approved by the National People’s Congress.

Noting that bricks-and-mortar stores in China are already overtaxed, Nie said exempting online stores from paying taxes could boost domestic demand and benefit the whole market.

He said the profit margin for online outlets is slimmer than for physical stores. An online store may struggle to survive with an annual revenue of 240,000 yuan (US$38,000), so Nie suggested the authorities set the taxable revenue limit at 500,000 yuan (US$80,000) or 1 million yuan (US$159,000) a year instead.

This view was supported by Dong Zhengwei, a Beijing-based lawyer familiar with taxation laws, who said it would not be worthwhile for tax authorities to dedicate their resources to collecting negligible taxes from small online stores.

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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