An arrivals area at Shanghai airport is seen littered with goods that Chinese tourists have chosen to dump after their overseas trips, rather than pay hefty new import duties. Photo: weibo.com
Last week, the photo posted on Weibo and other public platforms intrigued a hot discussion, showing numerous skin-care products scattered on the floor at the customs check area at Pudong International in Shanghai. Most people are worried about the new tax policy. It is said that Chinese tourists who bring in foreign goods worth over RMB 5,000 are required to pay hefty tax. And they would be treated as smugglers if they carry suitcases full of luxury items. Some students who are going back for summer vocation have already packed up their luggage and are even angry with the sudden action by the customs.
Actually, it is not the case. It is a rumor for the reason that such policy on travelers is an existed one. People have got used to lax implementation of rules in the past, but airports Customs have now decided to take the new rule seriously.
China sets new online import tax rules – source: youtube
On April 8, 2016, China did kick off a new tax regime for cross-border e-commerce trading, triggering mixed feelings among buyers and sellers on both side. According to the new regulation, products purchased online will no longer be treated as personal postal articles but as imported goods, which carry tariffs, import VAT and consumption tax.
source: diapiper-insights/publications-tax update
Besides, the new policy only allows a maximum of RMB 2,000 per single cross-border transaction and a maximum of RMB 20,000 per person each year. Goods that exceed these limits will be levied the full tax for general trade, which will be a disaster for the people live on cross-border trading.
Not surprisingly, the public believes that consumers will be forced to pay more than usual when they ship online. The new tax regulation will make imported products more expensive on e-commerce platforms, including baby formula, home appliances and clothes and shoes. However, other than the rising price on luxuries products, the new tax regime will bring about some advantages to China.
First, it can stimulate the consumption of domestic products rather than the imported goods, which is part of Beijing’s efforts to stem capital outflow. And it will also push the domestic producers to improve the quality of domestic products in order to attract the consumers.
Second, the new policy can speed up customs clearance so that consumers are able to receive most orders from overseas within two weeks. In the past, it could take two to five months if it need customs clearance.
Third, it can help the Chinese government to fight with the smugglers. Since some Chinese prefer the quality of imported products rather than the domestic ones. And most luxuries products are much cheaper abroad than bought in China. Many people abroad even live on buying products abroad and then mail them to the Chinese consumers. They will mail them as private products to avoid the taxes and make a profit with the difference. It is not easy for the customs to supervise since it is a grey zone. You cannot imagine how large the industry is. While with the new tax policy, the profit will decrease by a large proportion so that it will not be an attractive business. Qiu Huang, director of cross-border platform under e-commerce platform JD.com, said that though the new policy may deter some consumers’ desire to buy, it will benefit the whole industry in the long run. The new policy will benefit traditional imports and real economy, he said, adding that it will also prevent tax evasion and improve market order. Companies with more product variety and higher ability to readjust supply chains and products structure will get more development chances, while those that solely relied on price competition and imported products through illegal means will be regulated, he said.
Last but not least, in surveys, Chinese consumers list product safety and quality as top desires for buying foreign products online, so price increases may have effects not that large. For example, according to the survey, Zhang Jingxue, who is a staff of Tsinghua University as well as a young mother, believes that the price growth for baby formula will have limited influence. “Milk powder is a daily necessity, and I think a 10 percent price rise will not change the consumption habit for most people,” she said.
In conclusion, everything has its pros and cons. For the new tax policy of China, I will say the long-term economic benefits will outweigh the inconvenience brought to the consumers.