(Yicai) Nov. 18 -- China’s new tax reporting rules for internet platforms will end e-commerce business models that hide or reclassify income to evade taxes and usher in a compliance-driven reshaping of the industry, experts said.

The State Council announced the new regulation on June 20 and declared that it would take effect on the same day. All major e-commerce platforms and live-streaming platforms, including Taobao, JD.com, Douyin, and Kuaishou, are required to report operators’ and practitioners’ identity and income information on a quarterly basis.

Regulatory effectiveness has already begun to show, Securities Times reported. Many online store operators in different regions recently said they have received text messages from tax authorities reminding them to complete information declarations and instructing them to conduct self-inspections and supplementary declarations for past taxable business. Some practitioners have shared screenshots of the text messages on social media.

Some low-price and low-quality merchants will be significantly affected, and those that rely on tax evasion to cut costs will lose price competitiveness due to rising compliance expenses and will gradually be eliminated from the market, Securities Times said, citing Hong Tao, director of the Institute of Commercial Economics at Beijing Technology and Business University.

Over 90 percent of businesses on these platforms are small and micro enterprises with monthly sales of less than CNY100,000 (USD14,068), and they already pay little or no taxes under existing preferential policies, according to Tang Jiqiang, a professor at Southwestern University of Finance and Economics. The new regulations simply require them to standardize tax declarations, and their overall tax burden remains unchanged, he added.

“The core of the new regulations lies in levying taxes on hidden income in accordance with the law, rather than imposing additional taxes on enterprises,” said Sun Kunpeng, an associate professor at the School of Public Finance and Taxation of Central University of Finance and Economics. This change makes it harder for merchants to gain unfair cost advantages through tax evasion, shifting the focus of competition back to product quality, service experience, and business model innovation, and creating a fairer playing field for compliant operators, he noted.

This will drive online consumption to upgrade from “pursuing low prices” to “pursuing quality,” a shift that will not only foster a healthier brand ecosystem but also accelerate the industry’s structural transformation from traffic-driven to value-driven growth, Hong said.

A transparent and predictable tax environment can more accurately reflect economic conditions, support the scientific formulation and effective regulation of fiscal and taxation policies, and enhance the efficiency of resource allocation across society, Sun added.

China’s online retail sales totaled CNY15.5 trillion (USD2.18 trillion) last year, up 7 percent from the previous year. The gross merchandise volume of live-streaming e-commerce exceeded CNY4.5 trillion (USD633.1 billion), contributing 80 percent of total e-commerce retail growth. But many top live-streamers and large merchants have registered multiple self-employed entities to split income and use preferential tax policies for small-scale taxpayers to reduce their tax payments.

Editor: Emmi Laine