China’s new tax on cross-border e-commerce

April 28, 2016 / By

Consumers in China have the tendency to value imported items higher than domestically manufactured goods. This is purely perceptional, but is driven by a concern for quality. Further stimulating Chinese shoppers’ demand for imported goods is growing wealth and increasing international travel.

Prior to the flourishing of cross-border e-commerce (CBEC), taxation on imported goods for domestic trading included import tariff, value added tax (VAT), and consumption tax (if applicable). The calculation of dutiable value is based on domestic transaction prices. The complicated taxation system drove up the prices of imported goods sold in China.

The other gateway for foreign products is entering by personal luggage or by mail. Before the era of CBEC, the main purpose for carrying imported goods into China was for self-use and not for trade. As such, these items were taxed based on a fixed custom value, applying the so-called “parcel tax rate.” Taxation on self-used import is much simpler and lower, sometimes even exempted.

Realising the wide price gap of import goods sold in China versus their home country, savvy Chinese consumers and businesses began to take advantage of the loose implementation of “parcel tax” through various e-commerce channels. Facing the unstoppable trend of CBEC, the Chinese government has been cautiously coping with it, by first legalising CBEC trade in 7 pilot cities (later expanded to 12), where items ordinarily subject to commercial import duties are instead taxed as personal parcels, at a lower cost.

However, simply allowing CBEC businesses to enjoy tax benefits creates unfair competition against traditional retail and FMCG companies subject to import tax and VAT. According to China Briefing, CBEC revenue in China grew by 30% last year, while international trade was facing downturn.

In April, the Chinese government launched new tax regulations specifically designed for the CBEC industry. The new policy grants exemption to consumers who buy goods worth up to RMB 2,000, with an annual limit of RMB 20,000 on registered CBEC platforms. Under this policy, all goods imported via CBEC will be subject to lower VAT and consumption taxes. Another major difference is that while items with total tax amounts less than RMB 50 previously qualified for exemption, the new tax will apply to all imported items, regardless of value. Additionally, a strict screening process will be applied to goods entering China by personal luggage and mail. Depending on the transaction value of imported items, the overall cost may increase or decrease. (See table below)

Chart: Change of Taxation on Sample Categories of Imports in China

The new tax law signals an official acknowledgement of the CBEC industry, and creates opportunities for businesses on both sides of the border. For Chinese CBEC companies, increased regulation will help the industry professionalise and gain competitive advantages on the global stage. For non-CBEC FMCG companies and retail properties, the new regulation will ease unfair competition, and draw back those consumers who are less price-sensitive and less patient with the overly complicated custom declaration procedures. For international retailers, the legislation may spur partnerships with Chinese counterparts or the establishment of their own channels in mainland China.


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