Tax revamp to level playing field for online, offline stores

New e-commerce tax policies will take effect in China this month, which may lead to cheaper imported cosmetics but higher costs for food and baby products for consumers.

The move is the latest effort to tweak China's e-commerce tax policy, to create a level playing field for cross-border e-commerce websites and brick-and-mortar stores that sell imported goods.

Under the new policy, which the Ministry of Finance announced on March 24, the government will remove the parcel tax, the only tax currently levied on imported items sold online. Instead, it will levy an import value-added tax and consumption duties, with a 30 percent discount as long as a purchase doesn't exceed 2,000 yuan ($307; 275 euros) and the annual gross transactions of the consumer are below 20,000 yuan. For deals above the cap, consumers will get no discount and will also need to pay customs tariffs.

The policy will take effect on April 8 and comes a year after the government implemented the parcel tax to promote cross-border e-commerce.

The parcel tax rate for lower-end products such as food and infant items is 10 percent, according to Wang Wei, director of the State Council Development Research Center's Institute for Market Economy.

"Such low tax rates are in fact giving cross-border e-commerce sites an unfair advantage over offline retailers," she says, adding that the government is trying to fix the problem step by step.

The move also comes as China steps up efforts to boost domestic consumption, especially for high-end items. The government said in February it would open 19 duty-free shops across the country to meet consumers' growing appetite for high-quality products from overseas.

E-commerce company Alibaba Group Holding Ltd said on March 25 that lower-end products such as food and baby products will be subject to heavier taxes after the adjustment, "but overseas brands and retailers on our platform won't raise prices in the short term so that consumers can gradually adapt to the change".

Cross-border e-commerce is booming in China as the growing middle class increasingly desires products of higher quality.

Last year, online sales of imported goods reached 638 billion yuan and accounted for 17 percent of China's total online retail sales, according to Mintel Group Ltd, a market research company based in London.

The most popular categories of products purchased online in China are food, beauty products, consumer electronics, clothing and shoes.

Tan Naixun, an e-commerce analyst with Analysys International in Beijing, says although the new policy will increase the tax burden on some popular categories, the price of cosmetics may become cheaper if an individual deal exceeds 100 yuan.

"For instance, if consumers buy beauty and personal care products worth 1,000 yuan, they (currently) need to pay 500 yuan in tax, given the current parcel tax rate of 50 percent for cosmetics. But once the new policy takes effect, they will only need to hand over 329 yuan in tax."

masi@chinadaily.com.cn

(China Daily Africa Weekly 04/01/2016 page15)