E-commerce has the potential to pose a threat to traditional domestic markets, particularly where certain products are difficult to obtain or are highly taxed locally. Cheaper international prices, multiple delivery options and greater variety of goods can result in significant expenditure directed towards foreign retailers, putting pressure on governments to defend domestic businesses and jobs.
One of the few effective tools available for governments is to make cross-border online purchases less attractive through higher taxation or lowering De Minimis levels. This is the case in Canada, where the De Minimis threshold was set in the 1980s at just CAN$20, primarily to defend local industry. Though Canada’s De Minimis regime is popular with resident manufacturers, it has recently proven to be a major impasse within the NAFTA trading block and is deeply unpopular with Canadian online shoppers. A recent poll suggested that 76% of Canadians would like to see the limit raised to at least CAN$200, which would still be well below the USD$800 level in the neighboring United States.
The potential of added revenue from the heavier taxation of overseas online goods can be a primary argument for a protectionist De Minimis approach. In Q2 2017, Australia planned to reduce their De Minimis value from AU$1000 to AU$0 as a method of generating taxation from international e-commerce. However, implementation was deferred until July 2018 by the Australian Senate due to difficulties in determining how the extra taxation was to be collected. It is still an open point for discussion. In theory, a zero limit may seem attractive to governments.
However, a counterpoint to this argument is that the cost of processing low value items can exceed the revenue gained, thus negating any benefit to a government’s exchequer.
Of all the protectionist approaches, China’s is complex but perhaps also the most adaptable to international e-commerce. Introduced in 2016, the law reduced the De Minimis level to CNY50 (USD$7), using a stratified import tax system that applies a yearly and per transaction De Minimis limit per user. This ensures that occasional online shoppers are not taxed as heavily as those making frequent, expensive or large volume online purchases.