By Dezan Shira & Associates
Editor: Jake Liddle
The China General Administration of Customs (CGAC) has recently decided to make adjustments to the classification table and tax tariff list of imported goods issued in 2012. Taking effect from April 8, 2016, the policy will cancel parcel tax for cross border e-commerce and has been implemented with an aim to level competition between online platforms and traditional brick and mortar import stores.
An adjusted parcel tax scheme now only applies to goods brought back into the country for personal-use by Chinese residents with a value exceeding RMB 5,000, and for non-residents’ personal-use goods with value exceeding RMB 2,000. Goods amounting to less than these amounts are tax exempt. The tax brackets have been reduced from four levels (10 percent, 20 percent, 30 percent, and 50 percent) to three. Below is a table detailing the new scheme:
Influence on Cross Border e-Commerce Industry
Previously, imported goods that retailed online via cross border e-commerce sites were treated as personal postal articles and were subject to parcel tax with comparatively lower rates – around 10 percent if worth less than RMB 1,000. Furthermore, taxes amounting to under RMB 50 were waived as an incentive for exporters that sell general consumer goods to China.
With the implementation of the new tax scheme, these goods are now treated the same as ordinary imported goods, subject to import value-added tax (VAT) and consumption tax, which vary according to type of commodity. Although consumers can still enjoy a 70 percent discount on import taxes for single cross border e-commerce transactions under RMB 2000 ( RMB 20,000 for yearly transactions), the overall tax burden on exporters/retailers will increase and is almost certain to exceed 10 percent.
Certain low priced consumer products such as food and baby products, as well as luxury products that value above RMB 2,000, are to be most affected by this adjustment to tax rates. For example, before the change of policy, the price of a popular German branded baby formula came in at around RMB 258. After the adjustment – where tax exemption on items amounting to less than RMB 50 no longer applies – it will be subject to a tax of 11.9 percent, making the cost total RMB 289. However, commentators have noted that e-commerce giants like Tmall and JD.com will likely absorb the tax rise of certain commodities, squeezing profits to keep a competitive edge. And where some consumers’ will lose the desire to buy, the industry will ultimately benefit in the long run: previously, some online importers took advantage of the parcel tax to avoid taxes.
Conversely, given proper pricing strategies, the costs of selling higher priced products (below RMB 2,000) such as cosmetics, clothing and electronics might fall. For instance, a foreign cosmetic product priced at RMB 600 was subject to a 50 percent parcel tax before the tax reform (tax payable was RMB 300). After the adjustment, the product can enjoy a 30 percent discount of import VAT (17 percent) and consumption tax (30 percent), making the tax payable total RMB 197.4
Following tax rates adjustment, the Chinese government issued the “Cross Border e-Commerce Imported Goods List” to clarify what types of goods are allowed to be imported under a cross border e-commerce model. The 23-page “positive list”, covering a broad range of products from toys to household appliances, is aiming to clamp down on foreign manufacturers that use cross border e-commerce as a tax-free channel to export raw materials to China. Customs clearance times for items found on the list will be substantially reduced, allowing goods to reach customers within one to two weeks as opposed to the previous several months.
Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email firstname.lastname@example.org or visit www.dezshira.com.
Stay up to date with the latest business and investment trends in Asia by subscribing to our complimentary update service featuring news, commentary and regulatory insight.
Tax, Accounting, and Audit in China 2016
This edition of Tax, Accounting, and Audit in China, updated for 2016, offers a comprehensive overview of the major taxes that foreign investors are likely to encounter when establishing or operating a business in China, as well as other tax-relevant obligations. This concise, detailed, yet pragmatic guide is ideal for CFOs, compliance officers and heads of accounting who must navigate the complex tax and accounting landscape in China in order to effectively manage and strategically plan their China-based operations.
Selling, Sourcing and E-Commerce in China 2016 (First Edition)
This guide, produced in collaboration with the experts at Dezan Shira & Associates, provides a comprehensive analysis of all these aspects of commerce in China. It discusses how foreign companies can best go about sourcing products from China; how foreign retailers can set up operations on the ground to sell directly to the country’s massive consumer class; and finally details how foreign enterprises can access China’s lucrative yet ostensibly complex e-commerce market.
China Investment Roadmap: the e-Commerce Industry
In this edition of China Briefing magazine, we present a roadmap for investing in China’s e-commerce industry. We provide a consumer analysis of the Chinese market, take a look at the main industry players, and examine the various investment models that are available to foreign companies. Finally, we discuss one of the most crucial due diligence issues that underpins e-commerce in China: ensuring brand protection.