(Ecns.cn)--Central China's city of Wuhan took a controversial step Tuesday by taxing a locally-based online shop, the first move of its kind in the country.
"My One Percent," a famous shop which sells women's dresses on Taobao, China's biggest online retailer, was required to pay more than 4.3 million yuan ($665,000) in taxes, which include a value-added tax, an enterprise income tax and a retroactive fine for its 100-million-yuan in business from last year.
An unnamed official with the Wuhan Tax Bureau said the pioneering move is in accordance with current tax laws, which stipulate that all trade occurring within China is subject to taxation – in spite of the fact that there is no specific law designed for online businesses.
The taxation department also demanded taxes from four other local shops running on Taobao, all of which had high sales last year, while those with lower revenues will come under supervision.
Zhou Qinnian, who runs "My One Percent," said online businesses must follow regulations in order to become stronger. He said he felt "relaxed" after having paid his taxes.
Zhou's company has signed a contract with International Data Group (IDG), a leading venture capital company, and will obtain an investment of nearly ten million U.S. dollars within the year.
However, not every shop owner is as relaxed as Zhou.
"We are just small-time business owners who don't make much. The taxation has literally put us out of business," a shop owner surnamed Wang said.
Despite the efforts made in Wuhan, online shop owners in Beijing can breathe easy. The capital's taxation bureau said it will not levy tax on Taobao shops, at least not for now.
Such regional differences in policy could spark an "enterprise battle," according to an anonymous insider from the e-commerce industry, as shops relocate to cities without taxation and cities revise their policies to attract big companies.
The topic has also caused debate among consumers, as some people worry that the taxation policy may damage, or even restrain, the fledgling internet shopping market, while others believe it is fair for online shops to pay tax.
"Taxation will raise the operating costs for shop owners, which directly leads to higher prices. We consumers will eventually be paying the taxes for those shops," said a web user, while another, tagged "Shang guan Ji wu" said, "There is no free meal for online shops. They should pay taxes too."
Some experts suggested that the government should implement a more flexible policy for taxation of online shops.
"Taxation should be based on the revenue of the shop, from 5 percent to 10," said Liu Heng, a professor at the Central University of Finance and Economics.
The Interim Measures for the Trading of Commodities and Services through the Internet came into force on July 1, 2010. The regulations were seen by many as a prelude to a real-name system for online shop owners.
