E-COMMERCE: JOY AND SORROW

Published on May 4, 2016

On March 24th, 2016 a notification concerning changes in the cross-border e-commerce retail import tax policies has been jointly published by the Ministry of Finance of the People’s Republic of China, the China’s General Administration of Customs, and the China’s State Administration of Taxation. This policy renewal sets forth the rules on how to levy the tax of cross-border e-commerce retail import goods. Since the date of come into effect (April 8th) the Government no longer levies the tax of cross-border e-commerce retail import goods by the import duties on luggage and postal articles, while now imposing customs duties, VAT and sales tax. The publication of such policy has a big impact on different market sectors, and will lead to fluctuations of part of the commodity prices.

New Tax Policy

The policy is applicable to online sales of imported goods which are bought through e-commerce trade platforms; such platforms shall provide with trade, payment, and logistics electronic information. Therefore, all buys/sales of merchandise from e-commerce trade platforms like Tmall Global, Jingdong Global, Weipin Global etcetera will be bound by the new policy.

After the come into effect of the policy, it won’t be possible to buy goods without hesitation anymore, since the limited “tax free” amount of every single purchase is now RMB 2000 and the annual limitation is set for RMB 20000, accumulatively: within such limits, indeed, no import duties are charged, while only VAT and sales tax are due.

Meanwhile, the import duties on luggage and postal articles change from 4 different rates (10%, 20%, 30%, 50%) to 3 (15%, 30%, 60%).

Plus, under the previous regulation, an overall tax amount less than 50RMB was exempted, but now such benefit fell.

Joy and sorrow

The named cancelling of the 50-RMB tax exemption policy is unfriendly to the sales of goods under such level, as well as for the goods for which it was provided the previous roof of 10%, as mentioned above. And this is because, under the previous policy, all the goods as mentioned before, belonged to the group of “duty-free goods”, while now such taxes shall be paid. Moreover, the tax rates of several goods, such as the most popular ones concerning infants/baby products (like milk powder and diapers) have raised.

As already said, then, for every single purchase the limit for tax benefits is 2,000RMB: according to the general trade legislation, this means that for more than such amount, a full tax shall be paid.

On the other hand, merchandisers of luxury, high-end and cosmetics under 2,000RMB will laugh loudly, as the entry luxury’s tax rate decreases now from 20% to 11.9%, and high-end cosmetics’ tax rate decreases from 50% to 11.9%.

Will the new tax policy affect the spring of the cross-border e-commerce retail?

The implementation of the new tax policy of cross-border e-commerce will effect and adjust the balance between domestic consumption and cross-border consumption. The price advantage is the biggest driving factor for Chinese customers to buy goods through cross-border e-commerce. As well known to everyone, taxes are a big part of the goods price. The new tax policy makes some goods lose the price advantage, in a way that will absolutely impact the sales volume.

However, because of the new tax policy, some other goods’ tax rate decreases, stimulating consumption. Cross-border e-commerce retail, then, will still survive wonderfully. Is this new policy a way through which the Chinese Government is making a step back?