The Russian government plans to impose taxes on foreign e-commerce companies. Affected large platforms include AliExpress, Amazon and eBay. E-commerce companies that refuse to pay taxes will be blacklisted by the Russian Federal Service for Supervision of Telecommunications, Information Technology and Mass Media Roskomnadzor.
Foreign e-commerce platforms have great competitive advantages
ACIT, the Russian e-commerce association, believes that AliExpress, Amazon and eBay have a greater competitive advantage than domestic suppliers because products worth less than 1,000 euros and weighing less than 31kg are exempt from value-added tax and import duties.
Therefore, the Russian e-commerce enterprise association AKIT (the association unites 37 Russian retailers, including DetskyMir, Yulmart, Ozon.ru, re:Store, KupiVIP, Lamoda, M.Video, Eldorado, etc.) has proposed a series of tax amendments .
Introducing a new VAT mechanism to external platforms
The amendment proposes to introduce a VAT registration mechanism for foreign e-commerce companies, similar to the “Google Tax” implemented on January 1, 2017 – that is, foreign companies that sell electronic content and software to Russia through the Internet must communicate with the Russian mainland Companies also pay 18% VAT.
The tax rate for cross-border e-commerce packages will be set at “15.25% of the total price of the goods.” At the same time, the Federal Tax Service will have the right to require the platform to block the product pages of sellers who have not paid VAT.
If it fails to be implemented effectively, the tax office will file a complaint with the court and these sellers will be blacklisted by Roskomnadzor. Sellers who pay back VAT within 3 days can apply to unlock the page.
ACIT Executive Director Artem Sokolov said that the association has developed such proposals and government departments are discussing them.
The Russian Economy Ministry said it had received the proposal documents and was discussing them. The Ministry of Finance “has heard about these proposals” and is analyzing and discussing them.
Attitudes and opinions of all parties
These measures will force sellers to no longer sell products to the Russian market,” said Ilya Kretov, CEO of eBay’s Russian market.
“This will significantly narrow the range of products for Russia, and foreign platform sellers may directly indicate that ‘goods are not shipped to Russia.’ Overseas sellers already bear transaction fees, export taxes, and fees for using Internet sites and payment systems. Taxes , will also greatly increase the cost of cross-border shopping for Russian consumers.”
Alexander Ivanov, chairman of the Russian Remote Trade Association (including PonyExpress, LaRedoute, PickPoint, eBay, Studio Moderna, arvato, etc.), said that the ACIT proposal is too extreme and makes it difficult for sellers to register with the Federal Tax Service.
“For example, there are 3.6 million sellers on the Alibaba platform and 1.5 million sellers on the eBay platform. These are just the two largest platforms. There are many other e-commerce platforms. It is impossible for the Federal Taxation Bureau to accept the registration of all sellers. In addition, treat them indiscriminately. It is not cost-effective to impose VAT on parcels from all countries, and government operation and management costs may far exceed the taxes collected,” Ivanov said.
According to estimates from the Russian E-commerce Enterprises Association AKIT, Russia’s cross-border transaction volume increased by 34% in the first half of 2017 compared with the same period in 2016, reaching 178 billion rubles. Cross-border transaction volume accounts for 37% of Russia’s total e-commerce transactions (420 billion rupees).