New China consumption tax seen as encouraging mainlanders to spend more at home, less abroad

PUBLISHED : Tuesday, 12 April, 2016, 4:34pm
UPDATED : Tuesday, 12 April, 2016, 4:34pm

China domestic department store operators and luxury goods retailers including Golden Eagle, Hengdeli Holdings, Parkson Retail are among the key beneficiaries of China’s new tax regime on overseas purchases, said analysts.

Friday saw the introduction of a new tax regime for cross-border ecommerce purchases in China, making it more expensive to buy certain types of foreign goods.

Yee Man Chin, the director at Fitch Ratings said tighter restrictions on overseas purchases may narrow the price differential of luxury goods between China and the rest of the world, encouraging Chinese consumers to spend more domestically.

“The measures may create a more level playing field for domestic retailers if enforcement is strict and not short-lived,” Chin added. “News reports suggest the rules are being enforced more strictly.”

According to the new rules, retail goods purchased online will no longer be treated as personal postal articles but as imported goods, which carry tariffs, import value added Tax (VAT) and consumption tax.

Personal postal articles carry a tax of 10 per cent, if they are worth less than 1,000 yuan (HK$1,200). Taxes on goods valued at less than 50 yuan were waived. While import VAT and consumption taxes vary depending on the items purchased, they are almost certain to exceed 10 per cent, though e-commerce consumers will enjoy a 30 per cent discount on their taxable amount.

The new policy shall apply to 1,142 commodities most often traded online, ranging from food and drinks and children’s toys to diapers and some cosmetics, items that account for the bulk of demand in the booming e-tailing industry, according to Ministry of Finance.

Victor Au, chief operating officer at Delta Asia Financial says that the new taxes would not greatly boostHong Kong retailers because Chinese consumption demand has slumped because of slow economic growth and anticorruption policies.

“Cross-border ecommerce operators will be negatively influenced as Chinese consumers may choose to spend more in domestically when overseas prices are expensive,” Au added., a leading portal for imported mother and baby products, said buyers would have to pay 33 yuan in import duties for two packs of diapers sold at 276 yuan – an increase of nearly 12 per cent. A bottle of liver pills retailing for 109 yuan would be subject to a tax of 13 yuan, the website said.

The new system does not completely erase the advantages of e-commerce for imports of less expensive goods. Chinese consumers will enjoy a tariff rate of zero per cent, if the transaction is less than 2,000 yuan on a single purchase and has not exceeded 20,000 yuan in a given year.

There are more than 5,000 cross-border e-commerce firms in China, according to the Ministry of Commerce. It estimated the cross-border e-commerce trade would reach 6.5 trillion yuan in 2016 and grow at an annual pace of 30 per cent in coming years.