While online shopping has become increasingly popular among the Chinese, the government is mulling further regulations for online stores.

The State Administration for Industry and Commerce (SAIC) is expected to publish new regulations on C2C (consumer-to-consumer) online trading next month, media has reported.

The reports said major C2C sellers will have to register for a business license and pay taxes, while small-level sellers will not be required to do so.

Administration officials said late last month that a regulation for online trading services is under "research and analysis". They would not give further details.

The expected tightened management has stirred speculation and discussion among online sellers.

"I've heard about the new rule. At least 50 percent of online stores will close if the government levies taxes on them," says Hu Chao, a C2C online store owner.

The number of online shoppers reached 108 million in 2009, up 45.9 percent year-on-year, according to figures from the China Internet Network Information Center released on January 15.

The volume of China's online business market reached 268 billion yuan (US$39 billion) in 2009, and is expected to total 464 billion yuan this year, according to the latest research results from the China IntelliConsulting Corporation.

But some B2C (business-to-consumer) online storeowners do not have such worries, and, in fact, welcome the regulations. According to Han Jun, president of a popular B2C company named Yihaodian, more government intervention will help build fair competition and help stop counterfeit products from being sold online.

SAIC began to work on the regulation last July. The regulation is not only directed against C2C online stores. According to media reports, several firms that sell their goods on the Internet have received a copy of the draft, and have submitted their feedback to the SAIC.

"I don't think the government will directly levy tax on individual C2C sellers. They will fix different policies for different groups," said Zhang Yanping, senior analyst of the iRearch Consulting Group, a professional organization specializing in the Internet.

Generally speaking, online sellers are divided into two groups: business sellers and consumer sellers.

Business sellers are generally well-established companies, which are already obliged to register for a business license and pay taxes.

But consumer sellers are different. Usually only one or two people run an online store. They often operate their store on online-shopping websites, such as taobao.com, and neither have a license nor pay taxes.

Of all the online stores in China, 86.2 percent are consumer sellers, according to research results of the iRearch Consulting Group.

Hu Chao is a consumer seller, and he worries about the coming policies. "I opened a store on the Internet because it is cheaper. You don't have to rent a storefront, you don't have to register a license, and you don't even have to pay taxes."

He worries that his costs will have to increase if the regulations impact storeowners like him.

Zhang of the iRearch group says that consumers need not worry about increasing prices.

Taxation doesn't necessarily result in surging prices, she told China Daily.

"Big sellers have enough capital to bargain with suppliers. So increasing prices is not the only possibility."

However, B2C sellers hope that large C2C sellers will raise their prices.

Many B2C sellers open stores on C2C websites. And they are making use of the legal loophole to evade taxes, says Yihaodian president Han.

"They are more flexible than normal business sellers. They can lower their cost by evading taxes," he says.

Zhang confirmed that, adding that many consumer sellers have developed into small companies, which are not under government regulations. "This is common; more and more are doing so. But no statistics are available now."

On the other hand, if the government levies taxes on big C2C sellers, counterfeit products will lose their place in the market, Han said.

Since C2C sellers will be forced to ask for receipts of their incoming goods, counterfeit products will be squeezed out because unlawful suppliers can't provide receipts.

"That will be good for the overall online business," Han says.

iResearch's Zhang avoids making any judgment so far.

"Since the regulation is not published yet, it's hard to predict its influence ... but my suggestion is to set principles instead of detailed regulations, because China's electronic commerce business is still at a budding stage."

(China Daily February 12, 2010)