China issued temporary guidelines on online trade and services on July 1 last year, introducing a real-name system for online stores.
An online retailer in Central China's Wuhan was ordered Tuesday to pay 4.3 million yuan ($665,830) in taxes, the first such case disclosed in China.
Sales revenue of the Wuhan-based women's clothing store that operates on Taobao.com, My 1 Percent, totaled about 100 million yuan last year via at least two million online transactions, according to Wuhan tax authorities.
Although no specific rules on taxes for online stores are available in the country, all transactions that occur in China should pay taxes according to the laws, Wuhan taxation authorities said. But they said not all online stores based in Wuhan are required to do so.
Large-sized stores will have to pay taxes, but small ones will temporarily be exempted, according to local taxation authorities.
The number of online stores in China hit 13.5 million at the end of last year, with about 158 million online retail users, and online trade topped 513.1 billion yuan, up 97.3 percent year-on-year, about 3 percent of the total retail sales, according to a report by China E-Business Research Center.
Wuhan has about 30,000 online stores with annual sales of about 8 billion yuan. About 400 stores are above "royal crown" level, or 10,000 successful transactions on Taobao.com.
Taobao.com, China's leading e-commerce platform, classifies stores with different credit marks: heart, diamond, royal crown and golden royal crown. My 1 Percent has three "golden royal crown" marks, indicating its large size. It is now the leader of Taobao's women's apparel sales.
Professor Huang Minxue at Wuhan University said it will be a final development trend for online stores to pay taxes after they have run with core competition of low prices underpinned by no taxes and fees.
Tax on e-commerce should be treated separately, Huang said.
B2C (business to consumer) stores run in enterprise modes and thus should pay taxes, but most C2C (consumer to consumer) stores are of small scale and should be encouraged to expand through preferential tax policies, Huang said.
Zhou Qinnian, head of My 1 Percent, could not be reached for comment.
The move, however, might drive large-sized online stores out of the city, said Liao Jiangtao, deputy secretary general of Wuhan E-Commerce Association.
So far the country hasn't mapped out relevant policies, and it's hasty for Wuhan to take the step, Liao said.
E-commerce businesses will retreat from Wuhan, said Liao, adding that the businesses, about 30,000 online stores, now provide about 100,000 jobs or 400,000 indirect jobs.
China issued temporary guidelines on online trade and services on July 1 last year, introducing a real-name system for online stores.
Industry analysts had believed this might be a prelude to taxes on online stores.
