China's E-commerce Tax Rates
How to minimise the impact on your business of China’s new e-commerce tax rates.
What is Cross-Border Commerce?
The Chinese cross border e-commerce sector has grown 68% in the past 5 years. In 2015 it was valued at ¥638 Billion ($129 billion AUD).
But the Chinese government feels the sector has been abused. Consumers have used e-commerce as a channel to purchase foreign made goods at a cheaper price than those that have been officially imported.
To tighten control of this sector, on April 8th 2016, the Chinese government release new cross border import tax rates that have significant impacts on many foreign retailers who rely on the Chinese market.
Who is affected?
Consumers who buy their goods over the Internet or via T-Mall, JD, Amazon and other similar sites.
People who buy products overseas on behalf of others and bring them back to China to be re-sold. These “Personal Shoppers” are known as Daigou (pronounced Dye-go), which means “Buying on Behalf of”. Daigou is big business in China. In 2015 an estimated $7.6 billion purchases were made abroad by these Personal Shoppers.
How are they affected?
Whilst there are different tax rates for Daigou shoppers, E-commerce retailer customers will be subject to the following new tax rates:
In January 2016 the Chinese government implemented discounts in VAT and sales tax on certain items. These discounts however won’t apply long-term.
The government has also removed the “low value item” tax exemption. Previously goods with a value less that ¥500 ($10 AUD) were tax exempt.
More efficient process
Whilst the new structure makes it more expensive for Chinese to import goods, it does have some efficencies. Customs clearance, which typically takes 1-2 months in China is expected now to take just 2 weeks. Payments, Purchase details and logistics now also be traceable online.
Who is not affected?
Each Chinese Citizen can still import goods without paying the new import taxes if the total order value is less than ¥2000 (approximately $400 AUD) so long as their annual total remains under ¥20,000. VAT and Sales tax would however still apply.
Importers of luxury goods are unlikely to be affected as wealthier Chinese have consistently cited product quality and trust as their two main reasons for buying overseas.
Tobacco, alcohol, sports equipment and large consumer electronics actually benefit from the new tax rates
Retailers who have full import licenses are subject to different and more equitable tax rates to encourage goods to be bought into the country using official channels.
How can we help?
There’s no doubt the hardest hit category is e-commerce retailers of groceries, health foods etc. But there is a solution – become a full importer of goods rather than a pure cross border retailer.
Unlike recent reports, the process is surprisingly simple and takes just weeks to complete. As one of China’s leading logistics companies, we can assist e-commerce retailers to make the transition to full importers.
By utilising our “importer of record” services, with or without our warehouse and distribution solutions, we can help Australian retailers to maintain and grow their Chinese customer base.
