With online sales for 2015 reaching over USD 430 billion, China is the largest online retail market in the world. E-Commerce is one of the key pillars of China's 12th Five-Year Plan as the Government continues to look at ways of boosting domestic consumption.
Historically, China's e-commerce market had been driven by brands with a presence in China selling to the local consumer via either third party platforms or via their own local e-commerce platforms. Over the last 18 months, cross-border e-commerce has become a popular way for Chinese consumers to shop, with the market in 2015 growing by over 30%. This trend has allowed the consumer to buy items not yet available in China or at prices cheaper to what can be found in mainland China. With deliveries being taxed as personal parcels, for the majority of items under a value of RMB 1,000, the consumer would pay zero Value Added Tax (V.A.T.) or Consumption Tax. Import duties were most commonly fixed at 10% however this could range as high as 50% depending on the value and contents of the package. This however was considerably lower than regular custom duties and for all items that incurred less than RMB in duty, the consumer would pay zero duty.
Earlier this month however, new regulations came into effect related to both the tax policies applied to cross-border e-commerce transactions together with a 'Positive List' detailing what can and cannot be purchased cross-border. The Authorities intend to capitalise on the rise in cross-border e-commerce purchases by taxing all purchases while blocking items that are heavily regulated. Below we provide a synopsis on both.
Cross-Border E-Commerce Tax Policy
Under the new legislation, all items purchased online via an officially sanctioned e-commerce channel will be treated as imported goods and subject to Import Tarriffs, V.A.T. and Consumption Tax. However, if the item has a value of less than RMB 2,000 the recipient will only pay 70% of V.A.T. (11.9%) and Consumption Tax (21%) respectively. If the items are purchased through an officially sanctioned platform, the logistics carrier can provide customs with all the required electronic data and these items will not be subject to any import duties. For all items that are imported without the electronic data, the old system is still applied.
The Positive List
The Positive List which was compiled by 11 Government departments includes 1,142 products across eight categories. At the moment there is confusion about the meaning of this list however we believe that items not listed on the Positive List will be restricted from sale via cross-border e-commerce platforms
The Positive List and new tax breaks are as follows:
1 Books, magazines, educational movies, computers, digital cameras and 15% of other digital products, food 15%
and beverage, gold and silver, furniture, toys, gaming products, holiday or other entertaining products.
2 Sports products (excluding golf and golf appliances), fishing, textile and garments, electronic appliances 30%
3 Alcohol, cigarettes, cosmetics, precious jewellery, luxury watches, and golf and golf appliances. 60%
4 Others 30%
What are the Implications for Retailers?
The implications for this new set of measures mean that the cost of buying certain items will rise. Depending on the item, this could result in a far higher cost for the consumer. For example, the cost of cosmetics with a value of less than RMB 100 will see an increase of approximately 47%. Will this be a deterrent for consumers? We do not believe so. The majority of people buying online are not price sensitive. In addition, the items will still be cheaper than if they were to buy them in China, and by continuing to buy cross-border, this will give the consumer the peace of mind that what they are buying is genuine.
While there are a number of areas in the new legislation that remain unclear, what it does mean is that pricing is to become far more transparent which can only be a good thing for the evolution of China's retail market.
If you wish to discuss the subject and what implications this has for your business in further detail, please contact:
T: +86 (21) 3106 3404