New Tax Policy on China’s Cross-border E-commerce: Is it a disaster?

Screen Shot 2016-04-16 at 10.04.18 AMAn 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.

Screen Shot 2016-04-16 at 7.11.43 AM.pngsource: 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.

References:

Tax policy won’t derail online retail sector: http://www.ecns.cn/2016/04-13/206478.shtml

China imposes new taxes on goods purchased through foreign websites: https://www.internetretailer.com/2016/04/08/china-imposes-new-taxes-goods-bought-through-foreign-websites

Xinhua Insight: China’s cross-border e-commerce bids farewell to “tax-free” age: http://news.xinhuanet.com/english/2016-04/08/c_135262157.htm

China increases taxes on cross-border e-commerce retail imports:https://www.dlapiper.com/en/us/insights/publications/2016/04/china-increases-taxes/

Advertisements
This entry was posted in Uncategorized. Bookmark the permalink.

4 Responses to New Tax Policy on China’s Cross-border E-commerce: Is it a disaster?

  1. xiaoxixue says:

    Personally, I don’t think this policy is proper. A main reason for Chinese Gov to do so is to support local business. Government also charge a higher tariff for certain imported products to increase the competitiveness of Chinese local producers. Increasing the implementation of existing rules may shift some customers from foreign brands to China local brands. However, in the long term, Chinese local brand will be less competitiveness in global market because over protection from China government. Also, it is very costly for customers to examine the baggages of travelers. As time pass, the implementation will be less effective and won’t help China government to achieve its target.

  2. D.Lu says:

    I agree with Xiaoxi, that this policy will not do what it supposed to do to Chinese economy. I agree that this might help to maintain market order in some extent. However, this will certainly not prompt the Chinese producers to improve their product quality. In fact, since less market competition would be putted on them, they will actually produce products with even worse quality. The manufacture industry might be protected and profited in a short term, but Chinese producers will lose competitiveness under this trade barrier. In addition, it is very unreasonable that travelers need to pay tax of goods that might only look new. It is very likely that they are actually goods for personal use but look very new. Also for people who prefer to use designer brands, their personal items are very likely to be over 5,000RMB. They should not be deemed as smugglers and being collected tax from only based on how much their personal items worth.
    In conclusion, this trade barrier will not be doing any thing good for both Chinese consumers and Chinese producers. In long term, it might erode Chinese economy in a big extent.

  3. bingtingwang says:

    Thank you for sharing your views on this topic which highly relates to our daily life, which helped me to have a more comprehensive understanding on the import tax.
    Fortunately, the new tax regime only has a main impact on cross boarder e-commerce, with a strict limit—maximum of RMB 2,000 per single cross-border transaction and a maximum of RMB 20,000 per person each year. For those personal travelers who carry imported goods by themselves, this maximum number per time is still RMB 8,000.
    Chinese government uses this tax reform, from my point of view, as a chance to regulate development of cross boarder e-commerce companies, balance the profit of different ways of imports and add a new source of tax revenue from e-commerce which presents considerable revenue last few years. The tax reform also adjusts import tax on various goods e.g. increasing tax rate for baby formula and luxury goods but decreasing tax rate for cloth and cosmetic goods.
    However, the overall policy change will still transfer the tax burden to consumers who are in need of imported goods. Comparing to asking our friends overseas to carry import goods for us or buy directly from retailers abroad (many retailers’ websites do not support direct mail to China), cross boarder e-commerce is the easiest way to buy what we need from overseas. After the new tax regime is in effect, it will be even harder or costlier for people to buy foreign product.
    The most important thing is that, the increasing import tax rate can be over-protective for domestic producers and can never change our needs of imports goods, with generally much better quality or design. From my very personal perspective, the high tax rate on imported goods is a damage to our life of happiness.

  4. hanyuchen9 says:

    This is a very interesting blog, thanks for sharing it. The new tax policy on China’s cross border E-commerce is a very hot topic in China recently and is related to our daily life.
    Because of the tax and tariff, there is a huge cross border price difference, especially for luxury goods. Many people abroad live on cross border trading. And this kind of trade grows rapidly in recent years. For some of the customers in China, they used to enjoy the low price from cross border E-commerce. But now the new tax policy will definitely has negative effect on this trade.
    In the other hand, this tax policy protect the domestic industry. As you mentioned in the blog, it can stimulate the consumption of domestic products. I wonder how the government will do to balance the benefit of the domestic industry and the public. Will there be any followed policies to lower the price for some import goods, such as cars, luxury goods and health care goods.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s