China's cross-border e-commerce bids farewell to 'tax-free' age

A change of China's tax policy on retails sales on cross-border e-commerce platforms has triggered mixed feelings among buyers and sellers as the policy is expected to raise retail prices.

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 VAT and consumption tax.

Personal postal articles carry a tax of 10 percent, if they are worth less than 1,000 yuan (154 US dollars). And taxes under 50 yuan were waived.

Import VAT and consumption tax vary on goods, but combined they are almost certain to exceed 10 percent, though e-commerce consumers will enjoy a 30 percent discount on their taxable amount.

The tariffs for all goods are set at zero, for now.

Besides, the new policy only allows a maximum of 2,000 yuan per single cross-border transaction and a maximum of 20,000 yuan per person per year. Goods that exceed these limits will be levied the full tax for general trade.

The new policy shall apply to 1,142 commodities most often traded online, as published by the Ministry of Finance on Thursday.

During the past few years, China has witnessed a booming cross-border e-commerce sector, which registered more than 30 percent annual growth last year despite a sluggish foreign trade.

The new tax policy, aiming at leveling the playing field for e-commerce platforms and traditional retailers and importers, is bringing about anxiety as well as new hopes to both consumers and retailers.

HIGHER PRICES

Yu Jianmin, CEO of Shanghai supply chain management company Xinshiyang, said the new policy will mainly affect low-price products, such as baby products and food, and luxury products priced above 2,000 yuan.

Not all goods will see a growth in taxes, some products including cosmetics and clothes within certain price range will have their taxes dropped under the new policy, said Mo Daiqing with China e-commerce research center.

Zhang Siwen, mother of a two years old baby from Heilongjiang Province, has been stocking up some foreign baby formula these days. "I heard that prices for baby products could grow by over 10 percent," she said.

Zhang Jingxue, staff of Tsinghua University and also 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.

"As for the 2,000 yuan transaction cap, buyers of luxury goods will be affected," she said, "the 20,000 yuan personal consumption restriction will not have too much impact on individual buyers, since we can use other family members' quota to buy."

Experts suggest tax levied on products on online platforms is still lower than that of traditional imports. Moreover, the tax rise for certain goods will not necessarily pass on to consumers.

Liu Peng, general manager of Tmall International, cross-border e-commerce platform under Alibaba, said many sellers on the platform will keep the prices unchanged by squeezing their own profit.

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.

FAIRER MARKET

China currently has over 5,000 cross-border e-commerce platforms. The Ministry of Commerce predicted the volume of cross-border e-commerce in 2016 will reach 6.5 trillion yuan and will soon account for 20 percent of China's foreign trade.

Industry insiders believe that the new policy will help promote fair competition and create a more orderly cross-border e-commerce sector.

Zhang Bin, researcher with the Chinese Academy of Social Sciences, said personal postal article tax is not for trade purposes, which is exactly what online retailing is. It is unfair for conventional importers and domestic producers.

The new policy will benefit traditional imports and real economy, he said, adding that it will also prevent tax evasion and improve market order, since under the previous policy, some online purchasing agents have taken advantage of postal article tax and used new methods such as repackaging and mailing products separately to avoid tax.

Zhang also noted that consumers' rights will be better protected under the new policy, as products imported through online platforms will have to submit to the customs their transaction, payment and logistics information.

At the same time, the new policy will speed up customs clearance so consumers will receive most orders from overseas within two weeks, instead of the previous two months, he added.

Liu Peng said the cross-border e-commerce sector lacked entering threshold and oversight mechanism in the past. The new tax policy and online retail imports list encourage healthy development of e-commerce companies.

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.