Buyers need to be savvy about online taxes

When a major retailer raises its fees by 20%, it also raises eyebrows.

That’s exactly what online retailer eBay is proposing to do, with reports that its charges are to shoot up, ultimately hitting customer pockets hard.

What’s going on? Tax, that’s what. Tax systems work well when business is transacted within the borders of a country. Income tax, corporation tax, and Vat work best where a business and its customers reside in the same country.

Things get complicated cross border — so complicated that sellers either ignore the rules or are simply unaware of them.

Much of the tax we pay is invisible. When you buy an item of clothing in a shop, you don’t see the Vat at 23% charged on the garment, or the customs duty that applied if the item was imported from outside the EU. But when you’re buying cross-border from an online store, these additional charges really matter.

It seems revenue authorities across the world are clamping down to ensure they always collect the €19 of Vat due on an €100 shirt, or the €42 in Vat and excise on a €60 bottle of whiskey.

Reputable retailers are part of a supply chain of producers and wholesalers, and generally speaking tax is properly paid at every step of the chain. Problems arise though where trading is casual or occasional, perhaps in second-hand goods. And eBay, like many auction sites, is in effect a clearing house for casual purchasers and vendors.

From a government’s point of view, the potential for lost tax is colossal.

Generally, responsibility for taxes such as Vat which arise on sales lies with the seller, not the purchaser.

Reputable organisations will want to preserve their reputation, while keeping the local taxman off their backs. It seems that eBay is tackling both of these requirements by adding an additional 20% (the UK Vat rate) to the fees it charges some of its higher volume vendors, to ensure that at the end of the day, the Vat will be properly accounted for.

The company is to be praised for its responsible attitude, but it may cost sales.

In some cases it may ultimately become cheaper for Irish customers to buy goods and services by more traditional means than online. Online purchasers will need to be more wary of the web price quoted. The old saying that smart people read the fine print is never truer than with web purchases.

Another tactic to manage online exposure could be to choose Irish-resident vendors when making buying decisions. Irish businesses with a web presence will likely be properly registered for Vat and other taxes and this reduces customer exposure to hidden tax charges. It also brings the comfort of supporting Irish businesses and jobs.

A downside of buying Irish online is that not enough Irish businesses have a satisfactory web presence.

Figures from Retail Excellence Ireland suggest only 20% of Irish SMEs have websites capable of taking orders and processing payments online.

There is a real opportunity for Irish retailers to develop webstores. The eBay action underlines that it may not always be cheaper or more efficient to buy online.

It’s a problem that will be exacerbated by Brexit.

Brian Keegan is director of public policy and tax at Chartered Accountants Ireland


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