Tax-free Chinese exports have officially been cut off.
Data-driven taxation is now the ultimate weapon against tax evasion, seeing that China’s government is aggressively enforcing a massive data-sharing mandate, the newly activated State Council Order No.810, the Regulations on Tax Information Reporting by Internet Platform Enterprises. This has led online sellers to face an existential crisis.
According to a Financial Times report, by the end of the third quarter last year, more than 7,000 e-commerce platforms, including Alibaba, Amazon and Shein, were turning over tax-related data, including merchants’ profits, directly to the State Taxation Administration (STA).
During a briefing in December last year, Lian Qifeng, a director of tax for the STA, stated that “this (systemic reporting) is already yielding results and has contributed to a 12.7% rise in tax revenues from e-commerce platforms in the third quarter from a year earlier.”
Unlike in previous years, when enforcement was inconsistent because the government only asked sellers to voluntarily declare their income, the current regime requires quarterly reports from e-commerce platforms directly, including merchant identities, transaction records, profits, and income from digital tokens.
Online Seller’s Margin Crisis
The new regulation threatens thousands of micro-brands and SMEs.
An Amazon merchant identified as Huang by FT said, “Profit margins on Amazon for sellers average around 8% and rarely does anyone exceed 20%.”
The Financial Times reported that businesses with more than 5 million yuan (approximately $703,000 USD) are now subject to a 13% Value Added Tax (VAT). This could be crippling for sellers operating with thin margins.
An Amazon merchant identified as Huang by FT said, “Profit margins on Amazon for sellers average around 8% and rarely does anyone exceed 20%.” He added that the most significant benefit of online selling was not paying taxes.
Although cross-border sellers may be exempt from the 13% levy, this applies only if they can provide proof of export and official customs clearance. However, most online businesses lack this documentation due to the fragmented nature of the marketplace and drop shipping structures.
The Impact on Shoppers
Online shoppers have been enjoying extremely low prices on Chinese products due to subsidies. However, this is about to change.
With the data-driven tax crackdown, the cost of doing business will ultimately be passed directly to consumers. For millions of shoppers who flock to Alibaba, Shein, or Amazon, the era of $5 products is about to undergo a significant shift in pricing.
Giant e-commerce platforms are already notifying customers of price adjustments in order to account for the increased operating costs.
Additionally, there is the possibility of shoppers facing a decline in product variety. This is because many SMEs may be forced to exit the market due to higher taxes.
Looking Ahead
The high-volume, low-cost shopping experience is currently transitioning as the tax-free loophole closes. This means consumers who are used to deep-discount marketplaces will have to take a more strategic approach to online shopping.
With many large Chinese sellers moving their inventory to domestic warehouses in Europe and the U.S., shoppers should prioritise items labelled ‘local delivery’ for more predictable final costs, only slightly higher.
Bundling purchases is also a good way to offset fees and avoid getting multiple processing and compliance sub-charges on individual, smaller items.
