why small online purchases may cost more

If you’re used to shopping on Amazon, Cdiscount, Alibaba, or Wish, you might see prices go up from Thursday. The “VAT package”, a European regulation, comes into force with a whole bunch of measures concerning e-commerce sites. One of them will fill a tax gap and extend VAT to all products sold on marketplaces, the marketplaces of e-commerce sites through which companies from around the world go to sell their catalog. A tax that sellers risk compensating by increasing their prices.

Equality before VAT

In detail, until now, products under 22 euros purchased on e-commerce platforms from sellers based outside the European Union were not subject to VAT. An anomaly, since these same products, purchased from European sellers, were taxed at 20%. The European Commission has therefore put an end to this exemption created before the explosion of online commerce and which created a distortion of competition. From now on, all products, regardless of their amount and origin, will be taxed in the same way.

Direct consequence: the prices of the cheapest products are likely to increase in the coming days to compensate for the application of VAT. In addition, the platforms are now responsible for collecting the tax from third-party sellers and then remitting it directly to the tax administration of the country where the package is delivered. An obligation which should reduce VAT fraud on online commerce. In France, according to a report by the General Inspectorate of Finance, 98% of third-party sellers registered on e-commerce platforms are not registered for VAT.

Billions of euros more for the European Union

This tax harmonization is good news for European states. This hole in the racket cost them dearly. According to the European Commission, 150 million packages escaped VAT in 2016. And since then, the e-commerce sector has doubled worldwide. With the new regulations, EU member states could, according to the Commission, rake in up to € 7 billion in additional annual revenue.