Amazon Faces Rising Compliance Costs Threatening Operating Profit

This article delves into whether compliance costs should be deducted from the operating profit of Amazon sellers after achieving compliance. By analyzing the fundamental differences between VAT and corporate income tax, and drawing parallels with European VAT, it highlights the importance of leveraging export tax rebates to reduce costs. The article suggests that companies and operational teams should negotiate to find a cost-sharing solution that balances their interests and achieves mutually beneficial development. This collaborative approach is key to managing compliance expenses effectively and maintaining profitability.

A dark joke has been circulating among e-commerce sellers: "After tax compliance, operation bonuses got halved." This isn't just humor—it reflects the real predicament facing many Amazon sellers. As Amazon synchronizes seller data with China's tax authorities, tax compliance has become inevitable. However, the debate over whether compliance costs should be deducted from operational gross profits has sparked intense discussions.

I. The Compliance Wave and Its Cost Controversy

Starting October 2025, Amazon's platform will synchronize seller income data with China's State Taxation Administration, marking the beginning of comprehensive tax compliance for cross-border e-commerce. This brings new requirements including tax declarations and 9810 model operations. The most contentious issue for operation teams is cost allocation: Should compliance costs be deducted from operational gross profits after proper tax declarations? If implemented, operation bonuses would shrink significantly, directly impacting team motivation.

II. Financial Perspective: Understanding VAT vs. Corporate Income Tax

From a business owner's perspective, factoring in compliance costs seems reasonable. Companies face both value-added tax (VAT) and corporate income tax liabilities. Without accounting for these costs, financial statements might show inflated profits, leading to poor business decisions. However, determining whether compliance costs should affect operational gross profits requires understanding different tax types.

Value-Added Tax (VAT)

For domestic transactions, standard VAT rates typically reach 13%. A common misconception suggests "selling ¥100 means paying ¥13 to the government—a straight loss." This view is incomplete. As general taxpayers, companies pay input VAT during procurement. When goods are exported, this tax becomes refundable. Many product categories currently qualify for 13% export rebates, meaning procurement taxes can ultimately be recovered. Thus, the true compliance cost increase depends on whether tax rebate processes function smoothly.

Corporate Income Tax

Corporate income tax applies to net profits after deducting all costs and expenses. It shouldn't factor into operational gross profit calculations. Operation teams focus on product sales, promotion control, and turnover improvement. Deducting corporate income tax from operation bonuses would unfairly make frontline staff bear responsibility for company-wide strategy.

III. Comparing European VAT: Fundamental Differences Matter

Some business owners argue that since Amazon's European marketplace deducts VAT from gross profits, China should follow suit. However, these situations differ fundamentally.

Consider a product with an un-invoiced factory price of ¥100. After becoming a general taxpayer, the factory adds 10% tax points, making the invoiced price ¥110.

Flawed Logic: Costs increase from ¥100 to ¥110, so ¥10 should be deducted from gross profits while raising product prices.

Correct Analysis:
Factory payment: ¥110
Tax-exclusive price: ¥110 ÷ 1.13 ≈ ¥97.35
Export rebate recovery: ¥97.35 × 13% ≈ ¥12.65
Actual procurement cost: ¥110 - ¥12.65 = ¥97.35

This shows actual procurement costs don't increase. Perceived cost hikes often stem from ineffective rebate processes.

IV. Practical Considerations: Why Businesses Insist on Cost Inclusion

If financial logic suggests excluding these taxes, why do many companies still deduct them?

Management Tool: Strengthening compliance awareness. With tightening tax regulations, business owners hope including taxes in costs will make operation teams more tax-conscious during product selection and pricing.
Cost Control: Hidden compensation adjustments. When compliance costs rise, maintaining original bonus ratios squeezes net profits. By redefining internal gross profit calculations to include taxes, companies effectively reduce the bonus calculation base—a disguised salary adjustment responding to tax burdens.

V. Expert Recommendations: Balancing Business and Team Interests

For equitable compliance cost allocation, consider these approaches:

Non-Recoverable VAT: Legitimate costs. When general taxpayers purchase taxed goods but cannot obtain rebates, this VAT becomes actual business costs.
Supply Chain Optimization: Achieve low-cost compliance. By selecting quality suppliers and fully utilizing export rebate policies, companies can maintain compliance without excessive costs.

VI. Conclusion: Fair Allocation for Mutual Success

For business owners, leveraging rebate policies to reduce costs proves more sustainable than simply deducting gross profits to offset compliance expenses—such practices risk losing top operation talent. For operation teams, while understanding corporate compliance pressures remains important, maintaining reasonable calculation logic is equally crucial, particularly resisting the inclusion of corporate income tax and recoverable VAT in cost calculations.

Companies rushing to deduct these costs during early compliance stages—before processes fully stabilize—appear overly abrupt. Only through thorough communication and fair cost allocation solutions can businesses and operation teams achieve true mutual success.