Chinese sellers to overseas consumers will face new obstacles from halfway through next year.
Following the green light for postal services in destination countries to raise their charges to China Post (and other countries of origin), the European Union (EU) is to introduce a new VAT regime on 1 January 2021 that will make it more difficult to avoid the tax payments.
After the decision of the Universal Postal Union (UPU) last month to allow countries to set their own rate levels for delivery of incoming mail that they charge the post office at origin, the US and other countries with annual mail influx in excess of 75,000 tonnes can set their rates as high as 70% of their domestic rates come July 1, 2020 and, subsequently, raise them to a maximum of 80%. Countries with lower inbound volumes will be able to raise their charges starting in 2025.
According to Associated Press, China Post officials expect fees its agency has to pay other countries for parcel delivery will nearly triple through 2025. They reckon the new regime will raise these payments by 27% next July, rising to 164% overall.
A spokesperson for the US Postal Service (USPS) commented that the agency had yet not made an announcement on charges to be introduced next July.
In response to the UPU decision, the US Postmaster General hailed the “resolution of an intractable problem with the payment system for the international exchange of small packets that has persisted over many years, and that has been extremely difficult to resolve”.
In light of the large deficits the USPS has produced for years (largely due to its pension funding obligations), the agency should be eager to avail itself of the opportunity to charge more for delivery of merchandise from overseas online merchants.
On October 9, the USPS filed notice with the Postal Regulatory Commission to implement new prices from 26 January next year. This will raise the domestic charge for small flat-rate boxes from $7.90 to $8.30, while medium flat-rate boxes will cost $15.05 instead of $14.35.
When the UPU agreement was announced, observers pointed out that this was but one step to try and level the playing field between domestic and overseas online merchants. In the EU, overseas merchants have notoriously evaded VAT payments, which allowed them to undercut their European rivals.
The EU is moving to close this loophole through a reform of its VAT regime for e-commerce, which will come into effect on 1 January 2021.
A central plank of the new framework is the elimination of VAT exemption for goods in small consignments with a value of up to €22. Under the new regime the seller has to charge and collect VAT at point of sale and then pay the tax to the EU member state where the shipment is going. This will result in faster clearance, according to the EU.
And shippers will not be able to hide behind e-commerce platforms to avoid VAT.
“Businesses operating electronic interfaces such as marketplaces or platforms will, in certain situations, be deemed for VAT purposes to be the supplier of goods sold to customers in the EU by companies using the marketplace or platform. Consequently, they will have to collect and pay the VAT on these sales,” say the EU regulations.
The measures should reduce cross-border VAT compliance costs and enable EU-based businesses to compete on an equal footing with non-EU businesses not charging VAT.
Horst Manner-Romberg, principal of parcel research and consulting firm M-R-U, reckons the new VAT rules will hit online merchants from China more than the increases in mailing costs.
It remains to be seen in how far these new regimes will affect Chinese e-commerce flows to Europe and the US, but the hurdles are getting higher.