'Singles Day' parcel boom creates tax loophole headache for customs offices
Unscrupulous players exploit a loophole to avoid duties through the use of online shopping amid a November parcel boom in China
The "Singles Day" promotions of Alibaba Group Holding's Taobao and other e-commerce giants have boosted express parcel volumes this month, but also opened a loophole for tax avoidance that presents a challenge to customs authorities in the region.
Taipei Customs said it was concerned that there would be more duty avoidance through the use of e-commerce during the Singles Day promotion period, and as a result it had implemented more stringent inspection of express parcels in November, especially in response to Taobao's promotion activities.
Singles Day on November 11, a Chinese version of Valentine's Day for people without romantic partners, has become the busiest online shopping day in China.
Unlike traditional trade, in which goods go through customs clearance as cargo, goods bought online are normally shipped by express delivery and receive customs clearance as parcels.
Since parcels valued at under NT$3,000 (HK$760) are exempt from customs duty and business tax in Taiwan, e-commerce has created a loophole for tax avoidance.
"Some unscrupulous industry participants tend to go through customs clearance late at night and under-report the value of parcels in customs declarations, or break up the parcels into smaller ones in order to avoid duty and tax," Taipei Customs said in an e-mailed reply to queries from the South China Morning Post.
Taipei Customs said that between 2011 and 2013, the number of declared express parcels sent from the mainland, Hong Kong and Macau to Taipei was 15 to 16 times that of declared pieces of other goods, while the volume of imported express parcels was 8 to 9 per cent higher in November last year than the month before.
It said the volume of imported express parcels had been increasing in recent years. More than 11 million parcels were imported through Taipei Customs during the first nine months of this year, which was equivalent to 80 per cent of the full-year number in 2013.
Taipei Customs said it was not able to estimate the possible value of tax avoided through e-commerce channels, but anyone caught making a false declaration could be fined two to five times of the value of the evaded tax.
The tax avoidance issue comes into play when mainland consumers bought goods online from Amazon or other overseas e-commerce operators.
Cargo imported into China is subject to a 17 per cent business tax on top of a 10 to 45 per cent customs duty, while a parcel valued above 500 yuan (HK$630) is subject to customs duty of 10 to 15 per cent, and a parcel valued below 500 yuan is duty-free.
This also created incentives for freight forwarders to under-report parcel values or break up the parcels, said Jiang Zhaokang, a trade lawyer and founder of GTC Commerce, an e-commerce company in China.
"Some small freight forwarders would provide the Chinese consumers with a virtual US address. The goods purchased on Amazon or other e-commerce retailers would be sent to the freight forwarder in the United States first before being shipped to China as parcels," he said, adding that these firms often used such tricks to avoid tax.
Gary Ng, the chairman of the Hong Kong Courier Association, said tax avoidance often happened with small delivery firms, which tended to consolidate parcels to save the customs clearance process for every single online order.
In September, Shenzhen customs adopted more stringent measures and inspected every express parcel, causing severe congestion and a delay in the delivery of online orders.
Taipei Customs said it was concerned that there would be more duty avoidance through the use of e-commerce during the Singles Day promotion period, and as a result it had implemented more stringent inspection of express parcels in November, especially in response to Taobao's promotion activities.Singles Day on November 11, a Chinese version of Valentine's Day for people without romantic partners, has become the busiest online shopping day in China.
Unlike traditional trade, in which goods go through customs clearance as cargo, goods bought online are normally shipped by express delivery and receive customs clearance as parcels.
Since parcels valued at under NT$3,000 (HK$760) are exempt from customs duty and business tax in Taiwan, e-commerce has created a loophole for tax avoidance.
"Some unscrupulous industry participants tend to go through customs clearance late at night and under-report the value of parcels in customs declarations, or break up the parcels into smaller ones in order to avoid duty and tax," Taipei Customs said in an e-mailed reply to queries from the South China Morning Post.
Taipei Customs said that between 2011 and 2013, the number of declared express parcels sent from the mainland, Hong Kong and Macau to Taipei was 15 to 16 times that of declared pieces of other goods, while the volume of imported express parcels was 8 to 9 per cent higher in November last year than the month before.
It said the volume of imported express parcels had been increasing in recent years. More than 11 million parcels were imported through Taipei Customs during the first nine months of this year, which was equivalent to 80 per cent of the full-year number in 2013.
Taipei Customs said it was not able to estimate the possible value of tax avoided through e-commerce channels, but anyone caught making a false declaration could be fined two to five times of the value of the evaded tax.
The tax avoidance issue comes into play when mainland consumers bought goods online from Amazon or other overseas e-commerce operators.
Cargo imported into China is subject to a 17 per cent business tax on top of a 10 to 45 per cent customs duty, while a parcel valued above 500 yuan (HK$630) is subject to customs duty of 10 to 15 per cent, and a parcel valued below 500 yuan is duty-free.
This also created incentives for freight forwarders to under-report parcel values or break up the parcels, said Jiang Zhaokang, a trade lawyer and founder of GTC Commerce, an e-commerce company in China.
"Some small freight forwarders would provide the Chinese consumers with a virtual US address. The goods purchased on Amazon or other e-commerce retailers would be sent to the freight forwarder in the United States first before being shipped to China as parcels," he said, adding that these firms often used such tricks to avoid tax.
Gary Ng, the chairman of the Hong Kong Courier Association, said tax avoidance often happened with small delivery firms, which tended to consolidate parcels to save the customs clearance process for every single online order.
In September, Shenzhen customs adopted more stringent measures and inspected every express parcel, causing severe congestion and a delay in the delivery of online orders.
This article appeared in the South China Morning Post print edition as Customs faces 'Singles Day' tax headache
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