Easy access to a global customer base has made this a terrific time to be offering e-commerce services to small and medium sellers. However, a developing challenge around cross-border selling tax and duty compliance threatens to unleash a catastrophe of lost business driven by disgruntled sellers.
Until recently, authorities around the world have not enforced tax and duty requirements on much of international online commerce because the low total volume of sales meant enforcement would cost more than the revenue it generated. This has given many sellers a false sense of the true cost of international selling. However, that is now changing, and authorities are currently updating their regulations and increasing their enforcement efforts to capture the significant revenue that soaring international e-commerce has the potential to generate.
That said, most e-commerce platforms may not even be aware of this shift. Once enforcement becomes consistent, someone – buyer or seller – must pay the required tax and duty or the shipment is likely to be held up by customs. In this case, instead of happily opening a package, the buyer will receive a notice of an amount due – often a significant amount – before the package will be delivered, resulting in frustration and possibly a rejected order. When the angry buyer blames the seller for this fiasco, the seller, in turn, is likely to blame the e-commerce platform. “I’m using you for my e-commerce platform because you’re supposed to make my life easier! Creating frustrated customers is not what I’m paying you for!” As a result, the potential for sellers to stop selling internationally or even abandon the e-commerce platform is significant, leading to a significant loss of business for the platform.
An innovative e-commerce platform will immediately see an opportunity here. Why not get smart about international tax and duty compliance and calculate the appropriate amounts for the seller right at the point of sale? This is a great idea but much harder than it seems. It requires the ability to instantly identify the appropriate duty rate for each item in each shipment, and then calculate the correct tax amount by applying the appropriate tariff codes for each item based on the Harmonized Commodity Description and Coding System. Other calculations, such as a Value-Added Tax (VAT) or a Goods and Services Tax (GST) may also be necessary.
Fortunately, there is an easy-to-implement, cost-effective solution for this. Today, third-party cross-border tax and duty calculation services now exist that e-commerce platforms can easily plug into their systems. These services can instantly calculate the total cost of getting a shipment from the seller to the buyer by automatically pulling from the appropriate regulatory, tariff, product and shipping systems. And since these are online services, the e-commerce platform does not need to buy, install and maintain a new, proprietary system.
Exploring one of these third-party cross-border tax and duty calculation services may be one of the smartest things an e-commerce platform can do right now. In addition to preparing for and warding off the impending international tax and duty catastrophe, the platform will be able to offer a new and differentiated service that can ensure greater seller satisfaction and help to expand the current client list.
Besides, consider the alternatives. Doing nothing will lead to seller frustration and limit future opportunities. Trying to build a solution for tax and duty calculation from scratch is cost prohibitive – and would likely take years. However, by working with an easy-to-plug-in service, an e-commerce platform can immediately begin satisfying the complex needs of cross-border-selling customers and be prepared for tomorrow’s extraordinary growth.