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Informal online trade: Challenges and problems of reintegration into the official circuit

Informal online trade: Challenges and problems of reintegration into the official circuit

By Mohammed Taher Sbihi, Graduate of Mohammed 5 University and higher Diploma holder of business administration from ISCAE school in Morocco

The purpose of this article is to address the issue of the proliferation of informal online commerce issue, which operates in disregard of trade and fiscal rules, as well as those related to the world of work and social security. The distinction is made with online traders, who are in a regular situation toward these obligations.The crisis linked to the COVID-19 pandemic has accelerated the expansion of electronic commerce in general and particularly the informal one. This growth has allowed consumers to access a wide range of products while staying at home.


 Figure 1:  The COVID-19 pandemic has led to an increase in the share of e-commerce in total retail 

Source: Graph compiled by the OECD using data from the US Census Bureau, the UK Office for National Statistics, and Eurostat.

This type of trade is one of the main new facets of the informal economy.

In doing so, this phenomenon not only accentuates the weight of the informal economy in the value creation chain, but also has a direct fiscal impact, resulting in a considerable loss of revenue for the State, due to lack of identification of this operator type and their geographical location.This type of commerce (otherwise known as informal e-commerce, or informal electronic commerce) is added to the old components of conventional clandestine business (carried out in unauthorized houses or stores) and the one carried out by itinerant traders.

Without claiming to describe the ways and means capable of controlling this activity, the complexity of which is multidimensional, this article proposes to make some proposals likely to enrich the reflection, with a view to reintegration into the formal economy and why not, subsequent taxation.

Characteristics and criteria for differentiating e-commerce:

Highlighting the comparative features between classic commerce and electronic commerce

The main points of divergence between these two forms of activity are summarized in the table below:

Traditional business


Use of a traditional medium: Paper and other physical materials

Use of IT support

Market taking place in a physical location

Virtual market made up of cyber-consumers

Physical meeting between buyers and sellers (except in certain cases such as catalog sales)

Carrying out transactions through computer links

Payment in cash in most cases

Essentially, settlement through digital account-to-account transactions

Use of postal links or means of transport with time constraints

Instant delivery by telecommunications and / or mediate by delivery person

E-commerce can be done exclusively, as it can be combined with a traditional business activity.

On another level, and at least in its hybrid forms, we can find ourselves in the presence of a partially online business, which combines both e-commerce and other characteristics inherent in conventional business.

 The different forms of electronic commerce

The world of e-commerce, which is very vast, can be classified according to several classification criteria, including that according to the commercial profile (who sells and who buys): Mainly Business-to-Business or business-to-consumer; or according to the business model (online stores; memberships: customers making recurring purchases; Marketplaces: websites in which different sellers offer various products or services such as training, advice, coaching, etc.)

Figure 2: Google search queries on the term “delivery” in some OECD countries (February to April 2020)


Note: The vertical axis represents the search queries (all categories) on the term “delivery” (or the equivalent term in each country) on a date and for a given country, compared to the maximum number of queries on the term ” delivery” (value of 100) observed for the period and the countries considered. Source: Graph compiled by the OECD from Google Trends and the Oxford COVID-19 Government Response Tracker.

Advantages and disadvantages of e-commerce

The popularity of online commerce internationally did not emerge accidentally. Indeed, it has many advantages, but also disadvantages. Among the advantages are:

– The possibility of setting up freely on your own account;-Targeting a larger customer base, therefore a larger market with consistent margins;- A very accessible budget, with lower costs;

– The possibility of selling to several customers and at the same time;

– Offering a certain comfort for the benefit of customers;

– Permanently accessible on the web (7/7 and 24/24);

– Flexible trade, because it is possible to diversify the products according to the economic situation or the wishes of the electronic trader.The inconveniences of online commerce, which are more like challenges that probably can be overcome, are: Systematic lack of trust in the potential customer, because the products or services are offered to them virtually; required Internet connection, fairly stiff competition (e-commerce being easily accessible to everyone); need to have some basiccomputer skills and finally, the risk of technical incidents occurring on the web.

Figure 3: The informal sector in Morocco (national statistics office- HCP).

Problems raised by informal online commerce and risks incurred if not integrated into the formal circuit

The question of reintegrating informal online trade is a very complex issue because:

1 / It is imposed on States and has a direct impact on them individually and collectively, while it has a supranational character, given the universal and cross-border nature of the Internet, which is its platform;

2 / The fact that it is backed by this virtual and universal platform, this informal online commerce activity escapes any control by the States. Consequently, the principles of territoriality and intra-state sovereignty can no longer apply.

3 / The problem is even more complex because it involves the giants of the internet, real mastodons who are known for their power and their lobbying.

4 / It is also complex, because it cannot be resolved without the will and effective participation of all the states concerned, or even with the support of the superpowers.

5 / Finally, the issue is also difficult to pin down because it raises the great gap between online commerce and the law, which does not evolve at the same pace as this activity.

The main motive for the “demonization” of informal online commerce is that it is an undeclared, illegal, unfair, unidentified and poorly localized activity.

It is, then, an activity that competes unfairly against structured commerce, which employs declared labor and contributes to the country’s tax revenues.

Indeed, any declared economic activity, whatever it is, is supposed to contribute to the financing of public charges. The Moroccan Constitution is sufficiently clear as to the obligation, for all citizens, to participate jointly and in proportion to their contribution capabilities, in the coverage of these charges (articles 39 and 40).

Obviously, informal online commerce has experienced a considerable boom for a long time, without its operators having the reflex of fulfilling their act of citizenship, by paying their tax and social security obligations. Moreover, this type of business would be prone to aggravate tax evasion, fraud, pressure and injustice.

Taxing informal e-commerce could create market distortions, putting structured businesses at a disadvantage, which pay their taxes and are subject to regular tax audits. Moreover, official traders could be tempted to re-enter informal e-commerce, or, at least, to engage in tax evasion and fraud. Without ignoring the fact that informal online commerce is likely to contribute to annihilate the efforts made by the state to promote investment.

Argument in favor of the regularization of the informal online traders’ sector, with a view to their taxation

–       In view of the above, it becomes imperative to look for ways and means, with a view to reintegrating this activity into the official circuit, the only guarantee of its legality and normality.

–       Conscious of this issue, the State had made commendable efforts in this area, in particular through the attempt to bank informal economic activities (30% of GDP, according to Bank Al Maghrib), and the various incentives granted to them. But it is clear today that despite these efforts, the results recorded remain particularly mixed, mainly because of the feeling of mistrust of informal economic agents vis-à-vis these attempts.

–       The problem is therefore far from being insignificant and it will be necessary for the State, based on a selective benchmark, to show more ingenuity to recover this category of e-merchants, through a series of more incentive measures. retraining, or through alternative reintegration proposals.

–       On another level and on a purely fiscal level, the standardization of informal online trade is justified by many arguments, the main ones of which can be cited below:

-Compliance with constitutional, legal and regulatory texts;

-Equal opportunities for all traders and a spirit of fair play for all;

-Prevention of the uncontrolled proliferation of electronic commerce, which could lead to the disaffection of official taxable commerce;o   Provision of resources to the State, enabling it to cope with the increase in public charges.

– This regularization would constitute one of the main modalities of broadening the tax base, through fair taxation of informal electronic commerce, in the event of profit making. This taxation, which would be carried out at optimum rates, would be an important tax source in the future.

-However, the intrinsic characteristics of electronic commerce, namely that it is a distance commerce, without borders, and that its contractual process is paperless, influence its legal and tax regime and can be a difficult issue for tax administrations.

– These problems manifest themselves first in the difficulty of determining the tax base due to the dematerialization of the latter. The second problem concerns the calculation of the tax and the definition of a permanent establishment for them. Finally, the last problem is that of collecting taxes, in other words, how to identify the taxpayers and from whom to collect the taxes? This prospect also comes up against other additional obstacles:

–  Complexity of e-commerce operations;

– Problem of determining the source of taxable income;

– Problem of developing an optimal and fair tax formula.

Conclusion and recommendations

-Regularizing informal e-commerce is no small task, and that can by no means be the prerogative of a single state. This indeed requires a solid trategy, which can be deployed both internationally and nationally.

At an international level

– This involves taking part in the reflections and debates relating to this topic, initiated at the level of international organizations concerned;

-This issue should also be addressed within the framework of international cooperation, at the regional as well as the global level. Agreements could be concluded with States, and negotiations initiated with GAFA.

At the national level (case of Morocco)

-As part of Morocco’s digital strategy, aiming at the digitization of the administration (Morocco digital 2020 Plan and bill on the digital administration), a reflection could be initiated on the subject of the reintegration of informal economic activities into the official circuit, including informal e-commerce.

-This challenge requires more ingenuity and innovation from the state than in the past; because the actions previously deployed in this area have not been sufficiently effective; so that the results recorded at the time did not live up to expectations.

– More concretely, this issue involves both digital and internet technology, labor legislation, social security and finally taxation.

– Thus, it calls for the combined efforts of all, through close collaboration between State structures (Ministry in charge of Finance-Tax division, ministry in charge of trade, digital regulatory bodies-ADN and ANRT, as well as representative professional federations), in order to reflect on a global, integrated and more effective strategy in this area.

– As SMEs (small and medium-sized enterprises) are already identified for tax purposes, they should be encouraged to participate in e-commerce, for example by offering incentives, regulatory or financial ones, for SMEs that use digital platforms services.

At the operational level

–  In relation to the net, it is advisable to reflect on the possibility of conceiving a solution, aiming at the identification and the geographical localization of informal online traders and, at the same time, the determination of the size of this population and the overall volume of informal transactions carried out.

– Even if it could be developed, theoretically, it is obvious that this solution could not be put into service without the collaboration of GAFA, which provide virtual support to online commerce.

–  In parallel, measures will have to be taken as part of this large-scale project, namely:

At the institutional level:

– Imperative to update the tax arsenal, reform administrative structures, and amend labor and social security codes. This entire system will therefore have to receive all the necessary adaptations, in order to keep it in tune with changing modes of commerce. In order to be successful, the tax regime envisaged for informal online commerce must in particular be neutral, efficient, simple, reliable, fair and flexible.

At the promotional level:

Development of an incentive program for adjustment in official trade, through more motivating measures and an appropriate communication and awareness policy aimed at targeted traders. This education campaign should also aim to restore the climate of trust between the State and taxpayers, especially in tax matters because “without love, there are no alliances”!

In short, without an iron will from the State to remedy the anachronistic progress of informal electronic commerce, and without the combined efforts of States and Internet giants, this activity will continue to embody a seeming tax haven, which would be coveted by countless unscrupulous e-traders.

Indeed, the absence of a civic conscience among almost all informal online traders, who operate greedily, preferring to miss their social and fiscal duties, will only worsen the situation.

Hence, informal electronic commerce and other branches of the underground economy will continue to create deeper and deeper distortions within the economy and an atmosphere of injustice among entrepreneurs with good faith.

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