| Online stores evade millions in taxes a year |
SHANGHAI, Aug. 3 -- MANY online business owners were shocked this summer when one of their fellow traders was fined and placed on probation for following a common industry practice - avoiding taxes.
In mid-July, Zhang Li was sentenced to jail, but given a two-year probation, and fined for not paying taxes on maternity clothes and baby products she sold online.
She was fined 60,000-yuan, while her company, Shanghai Liyi Marketing Consulting Co, was fined 100,000 yuan.
Prosecutors told the Putuo District court the 30-year-old woman had avoided paying 111,000 yuan in taxes on nearly 2.9 million in revenue during the second half of last year.
Zhang told the court the owners of several online companies had told her they never paid taxes.
Several store owners on Taobao.com, China's largest auction site, told Shanghai Daily they never pay tax on sales, as they don't know that they have to nor how to.
"She (Zhang) just had bad luck as many of us do what she did," said one seller identified as Xiao Yu, who runs a clothing store on Taobao and has two offline stores in downtown Shanghai's Changning District.
He admitted he offers discounts to online buyers if they agree not to ask for invoice, which means he can avoid paying the tax.
Wu Xiaodong, a lawyer who used to work for the China E-Commerce Association, estimated that at least 60 percent of online store owners don't pay their taxes. That doesn't include sellers of second-hand goods.
"It is urgent that regulation on e-commerce taxation be enhanced, but the key is when, how, and how much is taxed on online trading," said Wang Rulin, vice director of the China Information Economics Society's e-commerce commission.
Wang said corporate online sellers with offline businesses should pay taxes as they are just offering a new sales platform for their goods.
Chinese taxation law states all deals, whether they are conducted online or offline and done by a company or individual, must be taxed.
There are some loopholes. Small sellers, those with deals worth less than 200 yuan each and 2,000 yuan a month, don't have to pay tax, according to Liu Fuyuan, a lawyer in Shanghai.
People selling second-hand goods only pay two percent tax on deals, compared with four percent for new goods.
"My suggestion is that the government reduce or exempt tax for individual e-commerce traders who contribute to employment," Liu said.
About 20 million people across the country, or 15 out of every 1,000 people, run online companies in the country, the China Electronic Commerce Association's E-Business World magazine estimated in a December report.
Nearly 70 percent of them said low prices are an advantage for e-commerce, while 76 percent cited the large number of customers available online as the leading reason they set up an Internet business.
The report noted only 12 percent of business owners made more than 50 percent of their income from their online stores.
"E-commerce still needs support, like favorable policies, to grow. It is growing fast, but it's still a baby, so this is not time to implement adult standards on it," said Chen Deren, vice dean of the software college at Zhejiang University, adding most countries still offer favorable policies to encourage the development of online stores.
The boom in online trading hasn't led to equal growth in online taxes.
Media reports have estimated that 800 million yuan in taxes is evaded each year by online companies, and that number is growing by 500 million yuan a year as the trading volume expands quickly.
Officials from both Taobao and eBay Inc said they are in support of the tax law. But as a third party trading platform, they can only urge traders to comply with the law.
"It is up to the development of a financial credit system and public tax awareness," said Liu Yan, a spokeswoman for eBay's China operation.
One improvement should be the creation of electronic invoices to facilitate paying tax online, several experts said.
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