The Korea Herald


'Uberization' of economies pinching state tax revenues

By 정주원

Published : Sept. 27, 2015 - 12:55

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With "sharing economy" services like Uber, Blablacar and Airbnb spreading among consumers, state tax collectors risk experiencing a revenue pinch as these new collaborative players capture market share from traditional businesses.

   The so-called "Uberization" of commerce is both rising in volume and spreading across an ever-larger number of sectors -- ranging from apartment, car and power tool sharing to money lending and food services.

   Increasingly popular trade directly between individuals is challenging the paradigm of traditional service businesses, and forcing national tax authorities to scramble for a way to get their piece of the action.

   "People speak of a digital revolution, but you also have to talk about a fiscal revolution," said Bernard Lalande, a Socialist senator in France.

   He is among those who fear that many individuals generating income through Internet-based sharing services will not declare them for taxation as required.

   "It's very easy with these sites to generate extra income that escapes taxation... and since development of the sharing economy is being encouraged, losses by the state will increase automatically," said Vincent Drezet, who heads the main labour union at France's finance ministry.

   Michel Taly, a tax lawyer and former director of fiscal legislation at the ministry, agreed, saying "the Internet allows the return of the barter economy on a large scale".

   "If that leads to entire sectors exiting the traditional economy, we can really start worrying," Taly said.

   Beyond spreading "Uberization" of sharing services, tax authorities are even more concerned about the wider booming digital economy, and challenges it presents to ensure all web merchants contribute their fair share to the public pot.

   "One problem is the increasing number of people involved," said French Senator Jacques Chiron, a Socialist.

   He said many vendors doing business with French clients are legally based abroad, and little inclined to pay France's value added tax (VAT) on sales.

   According to estimates, around 715,000 e-commerce sites are operating in Europe, yet less than 1,000 are registered with France's tax administration.

   "Tax fraud is considerable, and it's increasing. It's a real challenge," said Drezet, who urges a complete "rethink" of France's tax system to plug the Internet holes.

   Governments of developed economies have acted in the past year to dissuade companies -- especially Internet titans -- from registering their headquarters abroad in countries with lower taxes.

   The fear now is that as the digital revolution continues, increasing numbers of traditional businesses will join the flight offshore, taking with them the tax revenues societies in developed countries rely on.

     Conscious of that danger, members of France's Senate finance committee have authored two reports proposing solutions to a national tax system they term "obsolete".

   To combat online tax evasion, the reports propose replacing the current VAT collection procedure, where vendors collect the money from customers and are then supposed to pass it along to the state.

   Instead the taxes would be withheld by the buyer's bank during the transaction and paid directly to the government.

   More broadly, legislators suggest taxes on revenues generated in the shared economy be centrally collected by an independent platform that can automatically transmit those to national administrations.

   Under that plan, only income above 5,000 euros ($5,600) would be subject to taxation -- a limit the reports' authors say will help distinguish individuals involved in sharing services from high-volume professionals posing as private parties.

   Officials at France's finance ministry say before a wider reform of the nation's tax system is undertaken, there must be greater clarification of rules designating commercial activity, on one hand, and personal income on the other.

   Meanwhile, ministry authorities are already focusing on ways to prevent tax avoidance by online businesses, while also appealing to the civic sensibilities of larger Internet actors to contribute their part of the collective effort.

   One success in that came in late August, with the announcement by apartment sharing service Airbnb that it will begin retaining a 0.83 euro nightly bed tax applicable in Paris from hosts' accounts. (AFP)