The German government has approved plans to toughen the rules on the amount of tax online retail platforms such as Amazon and eBay are obliged to pay in Germany.

Following a cabinet meeting on Wednesday, German Finance Minister Olaf Scholz said the law would "end the illegal practice of some traders on electronic marketplaces that evade sales tax and thereby give unfair competitive advantages."

The draft law, which will still need to be approved by the German Bundesrat — the legislative body — and the Bundestag, the national parliament, will oblige online marketplaces to record any transaction that may be taxable in Germany, making them liable for it in the process.

Read more: Chinese retail titan JD.com muscles in on German market

For example, if the seller of goods on Amazon, eBay or other online platforms are not registered for tax purposes in Germany, the law would oblige those retailers to collect those taxes from sellers, for example through sales taxes such as GST (Goods and Services Tax) or VAT (Value-Added Tax).

Read more: Jeff Bezos at Berlin prize ceremony greeted by protests against Amazon

If the law passes the remaining hurdles successfully as is expected, it is likely that the online retailers will be obliged to collect such taxes from 2019 on.

Lost millions

On Monday, a German Finance Ministry spokesperson said that the loss of sales tax revenue on online marketplaces costs the German state several hundreds of millions in lost revenue every year.

"It is clear that there is a need to act," the spokesperson said. "We estimate conservatively that fraud is costing tax revenues in the three digit millions."

With online retail booming in Germany — e-commerce in the country was worth almost €60 billion in 2017, up by 11 percent from 2016 — the failure to collect sales taxes has become an increasingly significant issue for the German exchequer.

It means that German consumers buying goods from countries such as China and the USA on online marketplaces may in the future be charged additional rates in order to cover the sales tax which the platforms are now liable for.

aos/kd (Reuters, dpa)