Cross-Border Trade Regulation and Taxation
The expert discussion “Taxation of the Cross-Border Trade: Problems and Resolving” was started by moderator Natalia Kornienko, Head of the Laboratory for Fiscal System Development, RANEPA. Mrs. Kornienko stated, that the Internet-Trade is currently the fastest growing branch of the global economy. But the revenues earned in the branch can not be designated as “starting”. Any state with no exception for Russia concerns about revenues are being made on its territory by foreign residents carrying out cross-border trade.
Bruno Basilisco, Managing Economist of Copenhagen Economics Institute, appeared as the key speaker and presented the findings of European market Internet trading research, which was drawn up for the European Commission. According to the expert’s explanation, digitalization is being widely debated, but taxation issue is noteworthy. This topic is less interesting for people than digitalization in whole.
In the time of the brisk growth of Internet trading, one should debate not only taxation, but also customs regulation and VAT. The competition in Internet trading market is a important issue. Based on the research findings, about 52% of European electronic commerce is made up by small- and middle-scale business. The use of the electronic commerce elements allows to reduce trade barriers. Buyer and seller may meet in the market, an impossible thing under other conditions.
The main outcome of the research is the understanding, that the change of VAT threshold value affects markedly the costs incurred for all participants of electronic trading - from the delivery service and seller to buyer. The electronic means of VAT collection for such trading form may be a solution for the costs reducing task. In January 2018 an experiment was performed in Sweden by elevating of VAT threshold value, which affected sales turnover dramatically and resulted in its obvious degradation. Millions of parcels stopped in customs warehouse, the amount of entering reduced by 60-70%. Consumers decided not to pay additional fees for logistics. People buying goods online are used to do it quickly and simply. In case of difficulties, the consumers cease to make purchases this way. So, the taxation threshold affects the situation in whole.
According to the expert, taxation is a very application-oriented branch, and all theories are to be tested in practice. The situation of post services of prime importance should be considered in the context. Post services try to be in step with the times, widen their abilities, create hubs. But do not forget, this system requires certain work loads. For best effectiveness of electronic commerce, all processes should be harmonized in order to prevent breaks and slants.
Alexey Petrovskiy, Chief Analyst of Rambler&C, continued the topic of Internet trading market analysis and reported on current situation in Russia. For the time period of 2017, the ratio between retail and online trading volumes in Russia constituted 97,75% (retail) к 2,7% (electronic). In last three years, the increase for online-retail amounted to 15,4%. According to the expert, the market growth estimations may be both optimistic and conservative. The stable scenario for market volume calculation may is to be displayed by formulae: number of buyers x purchases frequency x average bill = market volume
Artem Sokolov, President of the Association of Internet Trade Companies, commented the results of the reported figures. In expert’s explanation, although the value of 97,75% was calculated using generally recognized criteria, it does not include such goods as petrol, cars, food products, and a number of other not to be bought online. The most advanced country is China, where the figure reaches 22%.
There is a pool of the largest online floors where practically all goods are being sold. These floors deliver goods across the globe within fairly short time. For registration of legal entity in Russia for trade dealing, it is necessary to collect a document suite, to possess certificates, documentation translated into Russian, sales register, reporting, to comply with laws and pay taxes and fees. In opposition to this, there is a legal way to import goods into the country without any costs, taxes, and obligations.
For 2010, the volume of domestic Internet trading in Russian market made up 92%. By 2018, the ratio of foreign online trading increased from 8% to 38%. According to the expert, the most prosperous and large-scale business developed namely from a pattern of cross-border trade. The failure to make any measures for regulation of the trade will allow foreign companies to occupy the whole market in the near term. The absence of intended regulation, could result in revenues reduction, job cuts, cutting of investment in trade infrastructure development, and withdrawal of business activity abroad.
Andrey Pavlov, President of ZENDEN group, supported the idea of imposing restrictions on cross-border trade strongly. In expert’s mind, the absence of the regulation leads to both slowdown in the rates of Russian business growth and dampening growth of the textile, clothing and footwear industry. In this very field, online trade penetrates markets at the fastest pace.
Armen Manukyan, Project Manager for Digital Services Development in the Russian Export Center, remarked on the necessity of the heavy-handed barrier regulation in his comment. The expert explain, that Russian market makes up less than 1% of the Internet trading total volume in global markets. Russia is concerned with export volume increase. It is confirmed by the provision of number of tax reliefs for business exporting Russian production. In relation to cooperation and export opportunities, the imposing of barriers for cross-border trade may create additional obstacles for development and ramp up.
In resuming the discussion, Natalia Kornienko thanked participants for the vivid dispute and the divergence of views. The topic of cross-border trade regulation encompasses many elements of global and national economy, with every passing day it gains in importance. This issue requires elaboration in details, since the decision making have to be prudent and conscious.
10th Gaidar Forum Organizers:
The Russian Presidential Academy of National Economy and Public Administration (RANEPA);
The Gaidar Institute for Economic Policy (Gaidar Institute);
The Association of Innovative Regions of Russia (AIRR).
The general partners of the Gaidar Forum are Gazprom and Gazprombank; strategic partners include Prosveshcheniye publishing house, Coca-Cola, Pharmstandard group, ACIG Group of Companies, the Russian Textbook Corporation, SANOFI, Novartis, Johnson & Johnson, Russian Railways, MSD, and Mastercard; EY, Cisco and Russian Direct Investment Fund are partners. This discussion’s partners are Philips, Cherkizovo and RVC.
The general information partners of the Gaidar Forum include the Rossiya 24 TV channel, Forbes global media company, RBC and TASS news agencies. The official information agency is Rossiya Segodnya. The general radio partner is Business FM. The strategic information partners are Kommersant Publishers, the RT TV channel, Interfax and Gazeta.RU. The main information partners are Profil weekly, FederalPress news agency, and Invest Foresight online magazine. The international information partners are Sputnik and Cision. Other media partners include PRIME news agency, Rossiyskaya Gazeta, RNS news agency, Radio Ekho Moskvy, News.Ru, Polit.ru, Parlamentskaya Gazeta, the PRO BUSINESS TV channel, Strategia magazine, AK&M, BRICS, Ekonomika i Zhizn weekly, National Banking Journal, Expert Tatarstan magazine, the Smart Country information platform, Financial One, Naans Media, and the Public Administration scientific political journal.