VIRTUAL REALITY

If we are to believe Microsoft founder Bill Gates, "in the future two types of companies will remain on the market: those that are on the Internet and those that are no longer in business". In other words, we are witnessing the emergence of a completely new type of economy - the e-economy or the Internet economy.

 In Azerbaijan the average annual growth in the volume of e-commerce [online shopping] is already two to three times greater than the country's entire trade turnover today. Thus, the turnover of the online retail trade in Azerbaijan in 2014 was 6.4m manats, which is 2.4 times greater than that of 2013, while 94.6 per cent of the e-commerce turnover consisted of non-food goods.

 Today Azerbaijanis are making online purchases of both clothes, domestic items, cosmetics and all kinds of equipment, spare parts for cars and even items of furniture. Seeing the growth in popularity of this form of shopping, the country's leading banks have begun vying with each other to offer special virtual bank cards intended solely for use in making orders from all the possible websites throughout the global internet. This means that the popularity of e-commerce has had a direct impact on making non-cash payments more popular, which is something the government has been striving to achieve over the last few years. The public have seen for themselves that there is nothing terrible about making purchases with bank cards and that it is even convenient and advantageous. Besides this, postal services have developed considerably and not only commercial ones, but everyday ones, and this has naturally boosted the profits made by the Ministry of Communications and Information Technologies in this department. This means that there are sufficient positive elements to make it worthwhile promoting, encouraging and developing this trend, if there were not one disadvantage. 

 The fact is that a so called "network of middlemen" offering their services to make orders on foreign websites has begun to develop with the emergence of e-commerce in Azerbaijan. We will cite an example to explain this. Let us say, you do not have a bank card or do not know the language on the website from which you wish to make a purchase or the site does not deliver to Baku, then by means of social networks or through acquaintances you contact a middleman who takes upon himself all the trouble involved in making the order and delivers the goods to your door, naturally for certain payment for these services. He often offers more favourable conditions for making the order, since discounts are offered on retail purchases on foreign websites and on commercial postal services. This means that when he collects the orders for several customers, the middleman receives these discounts and can offer the goods to his clients at lower prices.

Moreover, as the turnover increases and the number of orders grows, the skills of the middlemen who have a splendid understanding of the special features of a certain shopping website, have already made large purchases for the purpose of selling them on to their own regular customers or via social networks. Thus, a sufficiently wide circle of entrepreneurs has appeared alongside the ordinary virtual shoppers; for these middlemen online shopping has become a profitable, and, one might add, tax-free business.

The fact is that, in keeping with the existing legislation, one physical person can receive goods worth no more than 1,000 dollars by international postal services over a period of 30 days without paying any kind of customs duty. If the limit is exceeded, then duty of 36 per cent is levied on the "excess amount". Let's say, if the goods are estimated as being worth 1,200 dollars, the duty is only levied on 200 dollars.

It has become especially popular with the population to order smartphones, photo and video cameras and other expensive equipment from abroad at prices essentially lower than at local shops. However, a few weeks ago, the news caused a stir among Internet shopping fans about the customs bodies going to prevent admission to this country of mobile phones: a ban will be imposed on their purchase via the Internet. On the one hand, signals have started coming that customs offices are detaining parcels containing vitamins, dietary and bodybuilding supplements, too. 

The senior staff of the State Customs Committee was rather quick in responding to these reports. The first comment on the fact of detention of a batch of mobile phones at the border came from Safar Mehtiyev, first deputy chairman of the State Customs Committee. The customs bodies of Azerbaijan are holding a serious investigation into their import into this country, he said. "In particular, facts of tax evasion have been revealed in cases where mobile phones were sent by mail in the name of one and the same addressee and in the same months. Up to 8,000 such telephones were imported to this country within one month. Electronic commerce is not tax exempt in Azerbaijan," he said. 

Then State Customs Committee Chairman Aydin Aliyev himself made a statement that mobile phones imported by individuals as well as companies must undergo registration. Meanwhile the registration of telephones imported by mail and by e-commerce is currently impossible. "Electronic commerce has grown into a problem not only in Azerbaijan but also in many countries of the world. We met with similar problems in the past but in a somewhat different form. For example, some dealer would purchase goods at a cheap price and then hawk them," A.Aliyev said adding that the problem of e-commerce was raised back in December 2014 during a meeting of the Council of the CIS countries' customs services. 

There is also new information that the draft law "On advertising" has provisions to ban e-commerce for some types of products, namely alcoholic beverages, medicines, medical equipment, dietary supplements and baby food supplements. 

This e-commerce epic reached its apotheosis in a statement by Minister of Communications and High Technologies Ali Abbasov that the State Customs Committee has made a request for the Cabinet of Ministers to prevent abuse in e-commerce. Specifically, he suggested reducing the value of goods exempt from customs duties from 1,000 dollars to 150 dollars. 

Although the minister did not convey the ministry's frank attitude to the customs officers' proposals, definite signs of dissatisfaction with this decision crept through. Abbasov admitted that at times dealers take advantage of his loophole in the law to carry out illegal business operations. At the same time, he said, the ministries of communications and high technology, economics and industry and finance and the SCC [State Customs Committee] are holding consultations to prevent such occurrences. "If negative cases do occur, this doesn't mean that we must suspend technical development and ban services. But we must combat such irregularities. The State Customs Committee, and also structures dealing with economic security in general have a strong electronic infrastructure of administration and monitoring. And we are able to prevent cases of illegal electronic trading by adopting these methods," the minister added, stressing that relieving goods purchased on line, the value of which is not in excess of 1,000 dollars, from customs duty above all meets the interests of the population, including the less well-off.

"Making trade easier for them is important. This is a service and an advantage for them. We are trying to preserve these benefits for the population. But if some people or business structures decide to take advantage of and abuse them and deal in illegal electronic trading, then we shall use state-of-the-art technology to prevent this. The main goods imported into the country through electronic trade are mobile telephones, and we must pay serious attention to this sphere. We shall try to take a decision that will cover mobile telephones alone, and not other goods," the minister said.

It is quite understandable that the ministry, whose duties directly include the development of information technology in the country, cannot welcome a decision which substantially restricts the activities of the population in the sphere of e-commerce. However, one thing is clear: despite the dynamic growth in the last few years, the proportion of electronic commerce to Azerbaijan's overall trade turnover is still small. According to a survey, whereas per capita of the Azerbaijani population the volume of e-commerce is 0.35 dollars, in Russia this figure is 29 dollars, in Turkey 38 dollars and in the Czech Republic 217 dollars. Interestingly, in this question experts also took the side of the Ministry of Communications and High Technology, predicting the negative consequences of this decision.

Osman Gunduz, President of Azerbaijan's Internet Forum, believes that a reduction in the limit for the duty-free import of goods ordered on the Internet "would be fundamentally unfair", but certain mechanisms for regulation of the market are necessary, and, first and foremost, they should be aimed at the development of local e-commerce websites. The expert believes that a vacant niche in electronic commerce in Azerbaijan has been successfully filled by on-line retailers offering more advantageous conditions for obtaining goods, which is substantially reducing the competitiveness of local on-line distributors.

"It would be wiser to improve the mechanism of exposing dealers who derive income from re-selling ordered goods and making them liable for tax rather than denying ordinary people the opportunity to trade beneficially on Internet websites," Gunduz told R+.

Musviq Amirov, an advisor of the Ministry of Communications and High Technology, believes that there is no ban as yet on the import of smartphones from abroad, but some changes are expected. Incidentally, commercial postal services also confirm that the limit on duty-free imports remains at its previous level and there are no problems with delivering orders for this sum. But, at the same time they warned that there could be delays with obtaining ordered vitamins, food supplements and sports nutrition.

Be that as it may, all these adjustments and changes are at the review stage and they could be modified depending on how they are regarded in the Internet community and in official circles. For example, Ali Masimov, a member of the parliamentary commission for economic policy, noted that, on the contrary, a number of expansionary, not restrictive, measures should be taken to develop e-commerce in Azerbaijan.

As far as the tax regulation of entrepreneurial activity in the sphere of e-commerce is concerned, there is, indeed, a need for certain measures to be taken here. At the same time, it should be noted that this is a problem area for taxation throughout the world.

Because of the specific nature of electronic commerce and the lack of universal levers of control over it, even the advanced countries incur tax losses. The recommendations of the OECD [Organization of Economic Cooperation and Development] focus a great deal of attention on questions of the taxation of electronic commerce. Back in 1998 it adopted the basic principles of the taxation of electronic commerce, which later formed the basis of recommendations for EC. Lawmakers in different countries have the same approach to the taxation of EC: there is no need to introduce new taxation for operations conducted within the framework of electronic commerce; instead, the existing regulations for the calculation and payment of taxes should be adapted to this sphere. At the same time, it recognizes that the sale of goods via the Internet is just one method of marketing them, and therefore taxes linked with EC blend in with the general mass of taxes. Nevertheless, EC within the country still has its own peculiarities from the point of view of taxation compared with other types of business activity, because in most cases it is difficult to check the companies involved in it with respect to the full payment of taxes. Many of them often change their location or make broad use of the services of outside firms and therefore have a small staff, small office premises and do not have their own warehouses. Besides, it is usually small and recently registered firms that deal in electronic commerce. All this, taken together, enables enterprises dealing in trade via the Internet to be included among those taxpayers whom it is difficult to tax, i.e. those to whom the standard methods of taxation are poorly applied. Therefore, the proportion of taxes they pay is sufficiently high.

Minister of Taxes Fazil Mam-madov also said that "no advanced tax system in the world can fully cover this area". In point of fact, the exposure of individuals who use the possibilities of e-commerce for tax evasion is important today. "These individuals should be registered with the tax services as entrepreneurs, and if their annual income is not in excess of 120,000 manats they will pay tax at the simplified system of taxation, and these are sufficiently preferential and beneficial conditions," R+ was told at the Ministry of Taxes.

In short, as the well-known Azerbaijani proverb goes, "this dough will need a lot more water". The most important thing is that the baked "bread" is equally tasty for everyone.