The agreement on the establishment of the EEC in 2014 stipulates that the tax policy of the countries of the union remains the area of national regulation. However, against the backdrop of the growing turnover of electronic commerce in the Eurasian Economic Commission (EEC ), the need for general regulation appears. Details were reported by the Minister for Economic and Financial Policy of EEC Timur Zhaksylykov.
– EEC is preparing amendments to the payment of VAT. What are we talking about and what groups of goods is this initiative aimed at?
– We agreed that we will amend the Protocol on the exchange of information in electronic form between the tax authorities with regard to the payment of VAT. In the context of a single customs territory and the absence of customs control at the border, the issue of VAT administration, in the case of products moving from one country of the Union to another, requires special procedures: the importer submits to his tax authority an application for the import of goods and on payment of taxes, which is confirmed in the tax the organ of the country from which the goods were imported, and subsequently the tax authorities exchange this information among themselves. This information is necessary for the exporter to provide a VAT refund. It is clear that this takes some time, we agreed that the terms for the provision of these registers, applications for the import of goods and the payment of VAT will now be provided not once in ten days, but once in seven days. In addition, data processing will take one day instead of three. At first glance, these are technical changes, point-like, not aimed at changing the system. However, they make business life easier and more comfortable, and the administration process is faster and more efficient.
– So, while it’s not about synchronizing systems or creating a single system?
– In the Treaty on the EEC, the principle of tax sovereignty is laid down. As part of the exchange of information, tax authorities operate within their own information systems. In this part, the most important task of the commission is to establish an effective exchange of information, to create opportunities for the speedy transfer of all flows to the online regime. In addition to improving the electronic exchange of information between tax authorities, in our opinion, further development of the service functions of the tax authorities is necessary, for example, online checking of the status of applications for the import of goods and the payment of indirect taxes. This all makes life easier for entrepreneurs and allows them to react more quickly to changes in the economy.
– How do you assess the current state of this exchange?
– It works, but it is clear that many participants in foreign economic activity express certain criticism. They say that the exchange is slow, that the VAT refund procedure is based on confirmation from the tax authority of the country of import, which is not very fast. There are cases when VAT refunds are faster when exports are made to a third country. This is wrong, we need to achieve such a condition that the confirmation and refund of VAT on export within a single customs territory is at least not slower, but much quicker and easier for all participants in foreign economic activity. We understand that this problem is complicated, everyone understands this, so much work is being done in this direction.
– Does its decision require only informational changes or, in particular, some legislative change in the terms of return at the national level?
– As for the terms of the VAT refund, it is purely a national prerogative, and the terms of return are unified when exporting to non-CIS countries and deliveries within a single customs territory. The only question is: how to arrange the procedure so that the confirmation of the import and payment came as soon as possible? That there were no failures and that the tax authorities had full information.
At the same time, it should be remembered that, when delivering to the EEC countries, customs do not control them and does not participate in the information exchange process. But, for example, Armenia, Kazakhstan, and Russia have advanced very far in the integration of databases – tax and customs. In Kyrgyzstan and Belarus, too, certain steps have been taken in this direction. Despite the fact that this is a sphere of national competence, integration in this area is needed to improve the tax administration in the states of the Union, since the payers of customs fees and tax payers are the same legal entities. And of course, the tax administration carried out by the fiscal authorities is greatly facilitated and accelerated when they have the full picture.
– What other tax initiatives are being discussed? In particular, it was said about the need for amendments on the collection of VAT on goods released in the country from payment of this tax. In Russia, such a release is spread mainly on medizdeliya.
– Work is underway to improve the collection of indirect taxes, including the elimination of unequal taxation conditions for goods imported from member states and own production. For example, if a product is domestically taxed at a reduced VAT rate, the imported similar product should also be taxed at the same rate when it is sold on the territory of that state. Socially important goods, such as baby food, baby clothes, medicines, fall under this category of goods. The application of a reduced VAT rate in respect of these goods is taken to eliminate unjustified discrimination and is aimed at ensuring the functioning of the domestic market of our countries.
– And what about the situation around special economic zones?
– When VAT is administered in some Russian SEZs, there is a tax collision: the goods that are imported to the territory of these zones from third countries receive a VAT exemption, and the goods imported from other regions of Russia, Belarus, the countries of the union are not, since they move within a single customs territory. This creates unequal competitive conditions between goods supplied from third countries and goods of the union. Work to address this issue is coming.
– You said that the “road map” on the taxation of electronic commerce is already being discussed. What is the EEC position?
– It’s too early to talk about the road map. Usually, the road map is already a sufficiently specific document that is created when it is already clear on what principles, with what mechanisms, this or that idea will be implemented. While we are talking about the concept of taxation of electronic commerce. The first organizational steps were taken: a working group was established within the framework of the advisory committee on tax policy, which included representatives of all countries and representatives of the commission. In addition, we agreed on the first steps. We have approved the structure of the concept. Now we define the conceptual apparatus, goals and directions, the basic principles of taxation in the sphere of goods and services, look at the legal grounds, analyze the experience of other countries, including the difficulties they faced, the consequences for the economy that resulted normative decisions. Work at the very beginning, but all countries understand that electronic commerce is growing very fast, changing the market itself and constantly adapting to it. If we talk about the countries of the union, that is, preliminary assessments of experts that the Russian e-commerce market will exceed 1.1 trillion rubles this year. What is more indicative, the dynamics of growth is measured by double figures: the turnover of electronic commerce in Russia grew by more than 20% in 2016, cross-border trade in goods, works, services – by 35%. Approximately the same dynamics is observed in other countries of the Union.
– It’s too early to talk about the road map. Usually, the road map is already a sufficiently specific document that is created when it is implemented. While we are talking about the concept of taxation of electronic commerce. The first organizational steps were taken: a working group was established within the framework of the advisory committee on tax policy, which included representatives of all countries and representatives of the commission. In addition, we agreed on the first steps. We have approved the structure of the concept. Now we define the conceptual apparatus, goals and directions, the basic principles of taxation in the sphere of goods and services, look at the legal grounds, analyze the experience of other countries, including the difficulties they face, normative decisions. Work at the very beginning, but all countries understand that electronic commerce is growing very fast, changing the market itself and constantly adapting to it. If we talk about the countries of the union, that is, the preliminary assessments of experts that the e-commerce market will exceed 1.1 trillion rubles this year. What is more indicative, the dynamics of growth is increased by more than 20% in 2016, cross-border trade in goods, works, services – by 35%. Approximately the same dynamics is observed in other countries of the Union.
– Now the concept is focused specifically on the purchase of natural persons?
– It is focused on trade in general: for services, work and goods. According to works and services, we can already rely on the normative settlement, which in some countries already exists, for example, Russia adopted the so-called law on the tax on Google, which came into force on January 1 of this year. Such regulation will be in Belarus in 2018, but in the remaining countries, interested state bodies only assess the need for such changes. As for, for example, the VAT on cross-border Internet goods trade, there is no such regulation in any of the five countries. Moreover, throughout the world this is a fairly new topic, which is the subject of discussions. The European Union, for example, began to tax e-commerce in the service sector, too, more recently, starting January 1, 2015.
There are several important points here. It is necessary to decide, for example, whom to charge. Specific suppliers of goods, which on the marketplace can be hundreds of thousands and which can have tax registration in different countries and work according to various rules, or the site itself, which, in general, only offers access to the “showcase” with the goods and performs functions of the information service for interaction with the owner of this product. So far, there is no common understanding and common position on this issue. Experts offer different options, for each of which there are both pluses and minuses.
I want to remind you that in the process of developing the new Customs Code of the Union, we agreed that the norms of duty-free importation of goods in postal items for personal consumption will gradually decrease. Now the rate is € 1 thousand per month with a weight index of 31 kg. This is a very large volume, actually small wholesale. Therefore, it was decided at the first stage to reduce the bar to € 500 per month. Two years later, the next step – the upper limit of duty-free import will drop to € 200 a month. I want to note again: it will still be a fairly high figure. The lion’s share of purchases in foreign online stores is small at a cost – about 2/3 of them are less than € 22 per parcel. But their number grows like a snowball.
Therefore, the introduction of VAT in the cross-border Internet trade in goods will raise the issue of effective administration of this process. Is it necessary to establish a minimum threshold of value and what should it be like, how should VAT administration differ in transactions in B2B and C2C formats and much more. All these issues should be decided by countries at their own peril and risk, or the EEC should develop a joint policy in this area. We will have to answer ourselves to one important question: how to ensure such rules of the game, in which the fiscal effect would be higher than the cost of administering this process?
– Does the EEC have a position on this issue?
– Now we are analyzing the existing law enforcement practice. In addition, it is necessary to get acquainted with the position of other countries and understand whether this issue needs supranational regulation. The agreement on the EEC in the field of indirect taxes outlined the basic principles: the national regime in the sphere of indirect taxes, the harmonization of excise rates for some of the most sensitive goods, the improvement of VAT administration in the purchase of goods, the imposition of VAT on trade in goods on the principle of the country of destination, services. At the same time, the principle of tax sovereignty goes through a red line.
We have not yet reached the point where we need to talk about some deeper harmonization in the tax sphere, but realizing the importance of taxing e-commerce, we begin to discuss the concept, we want to agree on common principles. If the parties express a desire to go further than this is laid down by the treaty, we are ready for this.
– When they talk about the harmonization of VAT and excise taxes, in fact it is partial harmonization (or convergence) of excise rates?
– If we talk about tax harmonization in the EEC, it is worth noting significant progress in the unification of approaches to the implementation of indirect taxation. Different VAT rates in countries are due primarily to differences in economic systems – the ratio of the conjuncture (raw) and structural (industrial) component – as well as the ongoing economic reforms. It is very important to note the existence of the tax sovereignty of the member states of the EEC.
As for the harmonization of excise rates, this topic is not easy, we have been working on draft agreements on the principles of tax policy in the field of excise taxes on alcohol and tobacco products for several years, and while we are still at the stage of discussing the drafts of these documents.
– Do you have expectations when this can happen?
“We have moved far enough, but we still have differences.” In general, everything concerning excise subjects, regulation of alcohol and tobacco products markets, and in the future, perhaps, it will affect the oil products market, an extremely sensitive topic, and the countries agreed that for some period the barriers to the movement of these goods to the internal market of the EEC will be maintained. We have not yet reached a single market, when alcohol or tobacco originating from partner countries is administered in the importing country in the same way as the products of the national producer. One of the key issues in this area is reaching an agreement on the harmonization of excise rates on alcohol and tobacco. Around this there is a lively discussion.
There are different approaches to this issue. For example, the experience of the European Union, where there is a minimum rate of excise, above which countries can rise on their own and based on their national interests, but below which they can not go down. We proposed to introduce a certain corridor, the so-called indicative rate of excise on alcohol and tobacco products with a possible range of deviations, so that by certain period in the future the excise rates can be harmonized within this corridor. There is another approach, which involves the introduction of a single rate, which will be a condition for barrier-free production in the general market. All three approaches are being discussed, but so far, unfortunately, consensus has not been reached.
– A number of associations suggest significantly increasing the excise rates on alcoholic and tobacco products. What is your position?
– The whole world experience shows that when the excise rate for tobacco products is growing too fast, the black market is growing rapidly. This is a big threat in terms of fiscal interests and product safety. We have countries in which the amount of excise taxes for tobacco products is much lower than in Russia – this is Armenia and Kyrgyzstan. A sharp increase in rates can lead to the fact that we will lose everything that we managed to achieve earlier – transparency and “whitewashing” of the market, civilized relations with producers and distributors, observance of fairly strict rates of turnover of these products. All this much more effectively protects the health of the population than just a sharp increase in excise taxes.
– How is the preparation of the concept of the general financial market of the EEC going? Can you tell us what the main blocks will be?
– We are at the stage of discussing this issue at the level of the advisory committee, the regulators, in the first place the central banks, who actively made comments, actively joined the discussion. In general, there is a normal procedure for working out the document. Perhaps it will take us some more time.
– The common market should be created by 2025. What is the reason for the intensification of the discussion now?
– I believe that it is necessary to move consistently and thoughtfully to the common market, passing through different stages of integration. I would like to emphasize that the formation of a common financial market is a complex, multi-faceted and synthetic task that includes both the banking sector with its specific characteristics and insurance with its own characteristics, and finally, the securities market, which in itself consists of an impressive number of important integration elements, whether it is exchange integration, information, electronic, not to mention a harmonized policy towards issuers, investors, professional intermediaries and infrastructure institutions.
The global integration experience shows us similar approaches. In particular, the successful implementation of the task of building a common market in the European Union. We are studying, in particular, this process. We see that our concept of the formation of a common financial market in the EEC is similar to the goals and stages with the formation of a common market in the EU. In Europe, this path took more than 40 years, and the process is not over yet. New time, new challenges adjust plans and programs, require changes in tactics and approaches from both regulators and the market.
Until 2025, there is not much time left when compared with the scale of tasks that our countries have to solve. 2025-the year of the common financial market, will require such level of integration that will lead to full and unconditional recognition of licenses and will put forward such requirements to national regulators that regulation will be translated to the highest degree of consistency and mutual trust. Regulatory integration will be ensured by the implementation of the task of creating a supranational regulatory body with its own terms of reference.