“The store is operating normally, and the money is coming in as usual—what could possibly be wrong?”

This is what many Pinduoduo sellers are really thinking.

This is especially true for sellers of daily necessities and small goods—their gross profit margins are already slim, and they rely on high volume. They make just a few mao or a few yuan per item, face high return rates, and are subject to various platform fees. With profits already so low, who has time to worry about invoices and taxes?

It wasn't until they received the tax risk alert that many people realized:With such high transaction volumes on the platform but such low reported income, how are we supposed to explain this to the tax authorities?

The following content is based on real-life case studies of clients we have served; the data has been anonymized.

If you, like this seller, are facing high platform transaction volumes, few cost-based invoices, and risk alerts,Add me on WeChat at qcygscszk or call 18676749275, Please send us the basic details, and Qi Cai Ying will provide you with a preliminary assessment.

I. You Might Have the Same Problem with This Store

A seller in the Pearl River Delta who runs a Pinduoduo store specializing in daily necessities has been in business for over two years, operating on a low-margin, high-volume model, with annual platform sales totaling several million.

Sales at the store have been consistently good, but he knows full well that there are a few issues that still haven’t been resolved:

Question 1: The gross pay looks high, but the actual take-home pay isn't that much.

The platform shows sales of 5 million, but when you factor in returns, refunds only, various platform deductions, and compensation payments, the actual net amount received may be only 4 million. However, the tax authorities see the 5 million in transaction volume reported by the platform—how do you explain the discrepancy?

Question 2: Most Purchases Lack Invoices

Suppliers source their goods from small factories and wholesale markets, and many don’t even have business licenses. Purchasing costs account for the lion’s share of expenses, but there are almost no invoices—only bank transfer records and screenshots of WeChat payments.

Question 3: Mixing Personal and Store Accounts

Sometimes I receive payments through my store account, sometimes I transfer funds to my personal card, and sometimes I use WeChat Pay or Alipay to make or receive payments—it’s impossible to keep track of where the money is going.

Question 4: I received a risk alert.

A few days ago, he received a risk alert from the tax authorities—noting a discrepancy between his platform sales data and his tax return data—and was asked to verify the information.

His first reaction was:“Will we have to pay the full amount of back taxes based on the platform’s total turnover?”

If he were required to pay the full amount based on 5 million in turnover—including VAT, income tax, late payment penalties, and fines—his business might not be able to survive.

II. Just because no one enforced the rules in the past doesn’t mean they won’t be enforced now.

Many Pinduoduo sellers feel that:“I operate on a low-margin, high-volume model—my profit margin is less than 10%—so how could I possibly pay that much in taxes?”

This logic holds true in business, but not in tax matters.

The tax authorities don't look at your profit margin; they look at your “chain of evidence.”

Back when regulations were more lenient, platform data wasn’t integrated with the tax system, so the tax authorities could only see the figures you reported—they couldn’t access the platform’s transaction records. Whatever you reported was accepted at face value, and no one checked for discrepancies.

But now the situation has completely changed.

What has changed?

Since the beginning of 2024, tax authorities in many parts of the country have begun implementing a mechanism for the “automatic submission of e-commerce platform data.” Platforms submit sellers’ sales and settlement data to the tax authorities, which then compare this data with tax return information.

If the match is successful, everything is fine. If there is no match, the system will automatically display a pop-up window.

That’s where the “risk alert” comes from. It’s not because someone reported you, nor because the tax authorities are targeting you—it’s because the system detected an anomaly during a data comparison and automatically triggered the alert.

So the question now is: How much of a discrepancy is there between your platform’s sales data, your actual settlement revenue, and your tax return data?

If you can't explain this discrepancy yourself, you won't be able to explain it when the tax authorities contact you.

III. Six Common Risk Areas for This Type of Store

Based on the actual situation of this store and similar sellers on Pinduoduo, you can check against the following six risk areas:

Risk 1: Significant Discrepancy Between the Platform’s Sales Volume and Actual Settlement Revenue

The “sales” figure displayed on the platform includes all items, such as refunds, refunds only, platform deductions, compensation, and shipping insurance. However, the actual amount received may only be 70%–80% of the total transaction amount.

The problem is: The data the tax authority receives consists of the total transaction volume reported by the platform. If you report your income based on the actual amount received, the system will automatically flag it as “reported amount lower than platform data” during the comparison process.

Risk 2: Incomplete Records of Refunds and Returns

Pinduoduo has a high proportion of “refund-only” transactions, which is a unique feature of its business model. However, many sellers do not keep complete records of refunds, so when tax authorities conduct audits, they are unable to clearly account for “how much of their transaction volume consists of refunds.”

Risk 3: No Invoices for Procurement Costs

This is a common challenge faced by Pinduoduo sellers. Whether sourcing from small suppliers, wholesale markets, or 1688, very few can provide invoices.

What does it mean to not have an invoice? Your costs cannot be deducted before taxes, so the tax authorities can only assess your tax liability based on your “total income.”

Risk 4: Mixing Personal and Business Accounts

For the sake of convenience, many small sellers have their store proceeds deposited directly into their personal bank accounts and use their personal WeChat or Alipay accounts to pay for purchases.

What are the consequences? During a tax audit, large-scale fund transfers in your personal account will be deemed “concealed income” unless you can prove that the money is not business income.

Risk 5: Discrepancies Between Inventory, Purchases, and Sales Volumes

Because they lack purchase invoices and their inventory receipt procedures are not standardized, many sellers simply cannot account for “how much merchandise they received, how much they sold, and how much is left in stock.”

Why is this a problem? During a tax audit, if there are logical inconsistencies among your purchase volume, sales volume, and inventory levels, this will be deemed a “false cost deduction” or “concealment of revenue.”

Risk 6: Unclear Responsibility for Platform Subsidies and Promotions

The Pinduoduo platform offers various subsidies, coupons, and spend-and-save promotions. Some are covered by the platform, while others are covered by merchants. If these aren’t clearly distinguished in your accounts, the tax authorities will assume that “all discounts are profit concessions by merchants”—which is equivalent to underreporting your revenue.

4. How did this store handle the situation?

After receiving a risk alert, this seller found us through a friend’s referral. Once our finance and tax team got involved, we didn’t rush to “pay back taxes” or “amend tax returns”; instead, we first helped him with one thing:Find out the true state of his business.

Step 1: Restore the Actual Order Settlement

Export all order, refund, after-sales, subsidy, and settlement data from the platform and reconcile each transaction on a monthly basis:

• What is the platform's total transaction volume?
• What are the refund and refund-only options?
• What are the platform fees and compensation amounts?
• What is the actual settlement amount credited to my account?

Conclusion: The platform shows a transaction volume of over 5 million, but the actual amount settled and received is just over 4 million. The difference of 1 million consists of refunds, refunds only, platform deductions, and compensation payments.

Step 2: Complete the procurement evidence chain

He didn't have any invoices, but he did have records of purchase payments—screenshots of WeChat transfers, bank transfers, and Alipay payments—each of which corresponded to actual goods received into inventory.

We did three things for him:

• Organize all payment records into a ledger by supplier, date, and product category
• Match the receiving slips, shipping documents, and payment records
• Create a complete “Procurement Evidence Chain Correspondence Table”

Step 3: Cross-check inventory, purchasing, and sales data

We cross-checked his procurement, sales, and inventory data for the past two years—the goods received, the goods sold, and the remaining inventory—and found that the three figures matched up.

This is the most critical step. It can prove that your procurement costs are genuine, your sales are genuine, and your inventory is genuine. There may be no invoices, but there is evidence.

Step 4: Calculate the Tax Burden

Based on the three sets of data above, the actual tax burden for various taxes and fees—including value-added tax and individual income tax—was calculated separately according to his taxpayer status and the method of collection.

Step 5: Prepare a Specialized Explanation

Compile all the data and evidence into a “Special Report”:

• Why Is the Platform's Transaction Volume So High? — Because It Includes Refunds and Platform Deductions
• Why is actual revenue low?—Because of high return rates and a large number of refunds.
• Why aren't there receipts for the costs?—Because the suppliers are small factories and wholesale markets.
• But the purchase is genuine—it is supported by payment records, warehouse receipts, and shipping documents.

This statement will serve as the basis for future communication with the tax authorities—proving that “I have not concealed any income, and this is how my business operates.”

VI. After handling the matter, he did the math.

If no action is taken:

The tax authority has assessed income based on the 5 million transaction volume reported by the platform. Taking into account VAT at a rate of 13%, individual income tax on business income, late payment penalties, and fines, the total tax burden may exceed 15%.

5 million × 15% = 750,000 or more

When you add in the fines, the total could easily exceed 1 million.

After reviewing historical accounts, verifying costs, and providing specific explanations:

Based on actual settlement revenue of 4 million, after deducting verifiable costs, taxable income is significantly reduced. The overall tax burden is kept within5% or lessThe

4 million × 5% = Under 200,000

How much is the difference? It was off by several hundred thousand.

More importantly—it’s not about “whether you can pay less in taxes,” but “whether you can prove how much tax you should pay.”

If there is evidence, we can negotiate. Without evidence, we can only passively accept the assessment.

VII. If you’re also a Pinduoduo seller, you might want to check these points against your own situation

• What is the difference between the platform's total transaction volume and the actual settlement amount received? Do you have a record of this?
• Have the data on refunds, refunds only, and platform deductions been fully retained?
• Is there an invoice for the purchase? If not, do you have any payment records, warehouse receipts, or shipping documents on file?
• Are personal and store accounts being used interchangeably?
• Have you ever received a tax risk alert?

If any of the above applies to you, we recommend that you do one thing first:

All the platforms under your nameSales Data, Settlement Data, Reporting DataLet's pull it out and check it against the original.

If you've never done this before, you may not realize just how great your actual risk is.

VIII. What can we do for you?

To address historical accounting and tax risks faced by sellers on e-commerce platforms such as Pinduoduo, Taobao, and Douyin, Qicaiying offers:

• Restoration of Order Settlement Data—Get a clear picture of the platform’s transaction volume, refunds, deductions, and actual funds received
• Establishing a Chain of Evidence for Procurement Without Invoices—Use payment records, goods receipt slips, and shipping documents to substantiate actual costs
• Cross-Checking Inventory and Sales—Demonstrate that your procurement, sales, and inventory processes are logically consistent with one another
• Tax Burden Estimation and Special Notes—Calculate the tax burden based on actual data and prepare supporting documentation ready for submission
• Tax Risk Management Support—If you have already received a risk alert, please assist in preparing the necessary response materials.
• Establishing a Procurement and Accounting Compliance System—Solve problems at their source to avoid having to settle old accounts year after year

Who is this for?

• Sellers on platforms such as Pinduoduo, Taobao, and Douyin: High turnover, low profit margins, and few cost-based invoices
• Sellers Who Have Received Tax Risk Alerts: Concerned about being taxed on the full amount based on the platform's transaction volume
• Sellers Who Mix Personal and Store Accounts: My cash flow is a mess, and I don't know how to sort it out.
• Sellers who want to comply with regulations but are concerned about high costs: I'm not sure exactly how much compliance will cost.

If you’ve also received a risk alert, or if you’re unsure whether your platform’s transaction history matches your reported data, feel free to add us on WeChat and send us the basic details—Qicaiying will help you make a preliminary assessment.

Add me on WeChat at qcygscszk or call 18676749275

Enterprise Finance Group

Founded in 2015 and headquartered in Shenzhen, Qicaiying Group is a leading provider of corporate services and tax compliance solutions in China.

The Group is deeply committed to providing services across the entire corporate lifecycle. Its core business areas include: business registration, bookkeeping services, tax compliance, overseas company registration (Hong Kong, the U.S., Singapore, Mexico, etc.), cross-border structuring, outbound direct investment (ODI) filing, overseas tax planning, bank account opening assistance, and identity planning.

Over the past decade, Qicaiying has served more than 10,000 corporate clients and has accumulated solid practical experience in key areas such as corporate structuring in Hong Kong and overseas, cross-border tax and financial compliance, and corporate accounting management. The Group boasts a team of seasoned financial and tax advisors who closely monitor changes in domestic and international tax systems and regulatory trends, providing clients with one-stop solutions ranging from structural planning to implementation.

statement denying or limiting responsibility

The content of this article is based on actual service cases; client information has been anonymized. This article is intended to provide general information on finance and taxation and to highlight compliance risks; it does not constitute any tax, legal, or financial advice. If readers face specific tax issues, they should consult a qualified tax professional or the competent tax authority. Tax policies are subject to change at any time; please refer to the latest laws and regulations. Qicaiying assumes no legal liability for any losses arising from reliance on the content of this article.