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China's Cross Border Tax Reform

Mar 30, 2016

China's cross border tax reforms you should know about

Currently cross border ecommerce in China is taxed through the "postal articles tax" which varies according to category. For example, mom and baby products are taxed at 10% while cosmetics are taxed at 50%. Starting April 8th of this year tax reforms will come into effect that will change the current landscape of cross border ecommerce in China and present both opportunities and challenges for companies and distributors across a variety of categories.


1. Tax reforms to take effect April 8th for cross border ecommerce

After April 8th China will no longer use the "postal articles tax" and instead use a combination of an import tariff, VAT and consumption tax at 70% of the total value. i.e. (tariff + VAT + Consumption tax) * 70%

Breakdown of changes to each tax for cross border ecommerce and additional factors to consider:
•    VAT decreases from 17% to 11.9%
•    Consumption tax decreases by 30% (varies by category)
•    The policy that waived tax if taxed amount was less than or equal to 50RMB will be eliminated
•    Import tariff will not be levied unless the transaction amount is over 2K RMB

2. How this tax reform will impact different categories

In General, categories with inexpensive goods will be hurt the most by these reforms, including food & beverage, Mom & Baby and groceries. However the tax reform will benefit light luxury and premium products.

Please refer to the following table for a couple examples:  


3.  Tax reform influence on cross-boarder e-commerce platforms
 
When we think about "cross-boarder e-commerce"  in China, we think about imported goods, such as milk powder, diapers, Korean and Japanese cosmetics, etc. Almost all cross-boarder platforms leverage the products mention above to drive traffic to their platforms.

With the tax reform coming into effect, many vertical platforms will have to change their strategy. Platforms are likely to reduce the categories mentioned above, but increase their assortment of higher end cosmetics, high quality household FMCG and appliances, which could lead to an upgrade in the overall cross-boarder e-commerce market.  

4. Effects of the reform vary by product category  

Based on the information available to date, apparel / shoes / handbags / accessories between 250RMB (38USD) and 2000 RMB (305USD), and cosmetics between 100RMB (16USD) and 2000RMB (305USD), will benefit from the tax reforms as the tax rate on these goods are expected decrease. You can check the below table for details:
 

*Note: we will continue to udpate this table as new information comes in 


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