Report: China to Tax E-Commerce

China plans to tax sales over the Internet rather than give a tax advantage to e-commerce businesses, according to statements made Sunday by the country’s top taxman.

Jin Renqing, director of China’s State Administration of Taxation (SAT), told the state-run China Daily that the country must maintain its taxation sovereignty and level the playing field between e-businesses and brick-and-mortar merchants.

Jin said, “The electronic form of e-commerce does not change its nature of trade.”

E-Commerce Infancy

Chinese e-commerce is still in its infancy because few citizens have credit cards, and few rural citizens have access to computers. Even so, Jin told the China Daily that his agency is not going to boost growth by allowing a tax exemption.

Developing countries that emulate more developed countries and exempt e-commerce from taxation in order to promote the growth of e-businesses are losing a valuable source of revenue, Jin reportedly said.

No plan has been established for how to tax Internet sales in China. However, Jin said that the SAT had set up a special tax force to handle e-commerce taxation issues, including how to prevent tax evasion in cyberspace.

Big Money

Research firm IDC predicts that e-commerce revenues in the country will grow from $43 million (US$) last year to $12 billion by 2004.

Despite the high-dollar volume of trade expected, China’s tax collectors are going to have to trouble locating tax payers, according to Jin. The collection problem will be especially acute in transactions involving invisible commodities such as digital downloads, intellectual property rights, and cross-border transactions.

Under the Gun

According to reports, China is facing unusual budgetary pressures this year due to an expansive spending package, initiated two years ago to reinvigorate economic growth.

Jin’s agency is under the gun from the Chinese Finance Ministry to increase tax revenues to help pay for the increased government spending. The SAT is also facing pressure from individuals and businesses that want lower tax bills. Jin said, “Like a tax director in any other country, I am not always welcome because we take money out of people’s pockets.”

China and the Internet

The Chinese government’s relationship with the Internet is a complex mix: Beijing welcomes the money and progress that the Internet represents, but loathes the freedom of information and loss of control that the Web brings.

The government has limited Internet commercial licenses for foreign entities and requires companies using any form of electronic encryption technology to register with the government.

The Chinese government has also banned the publication of foreign news on such portals as Sina.com and Sohu.com. In May, Chinese police shut down a news Web site, China Finance Information Network, for 14 days, and fined the company for publishing what police called a false media report. In an effort to stop the flow of banned publications, the Chinese government is also cracking down on online booksellers by requiring them to submit to a government inspection before being allowed to sell online.

Beijing’s regulations are not stopping Chinese companies from exploring e-commerce, however. A recent report by the Beijing Internet Development Center (BIDC) revealed that 70 percent of China’s export companies are exploring or about to explore foreign e-commerce opportunities.