China changes tax rules on purchases from overseas e-tailers

That sales tax is still less than the 17% value-added tax consumers pay when shopping in stores in China, Alizila reports citing Internet Retailer. The existing rules, which mirror the regulations for consumers bringing in purchases from abroad or receiving them by mail from friends overseas, allow a consumer to import up to CNY 1,000 (USD 153) worth of products at a time for personal use, up to CNY 20,000 (USD 3006) in a year.

Those purchases are subject to import duty—which generally vary from 10% to 50% of the purchase price, depending on the type of product—but the tax is waived if it’s under CNY 50 (USD 7.65). The CNY 50 exemption will be eliminated in the new rules.

The new policy will benefit sellers of products for which the duty is high, such as cosmetics, which have to pay a 50% duty tax, according to Li Pengbo, CEO of China Cross-border E-commerce Research Center, a consulting company. But other items for which the duty is low, such as children’s products, the new rules will make it more expensive for Chinese consumers to buy from overseas websites, Li says.

Here are some major product categories, with the duty tax percentage:

Food, 10%
Alcohol, 50%
Apparel, 20%
Cosmetics, 50%
Electronics, 20%

Thus, under existing rules a Chinese consumer who buys a shirt for USD 50 on a foreign ecommerce website pays a fee of USD 10 (20% duty on a USD 50 purchase), whereas under the new rules he would pay only USD 5.95 (no duty, but a sales tax of 11.9%). However, a consumer buying USD 30 of powdered milk today would pay no duty or sales tax (the duty would be USD 3, 10% of USD 30, but that is waived because no fee is charged if the duty is below CNY 50 (USD 7.65)), whereas under the new rules she would pay USD 3.57 (no duty, but a sales tax of 11.9%.)

Both the new rules and the old ones also apply to foreign companies that sell on Chinese marketplaces under the relaxed cross-border ecommerce rules that China has adopted in recent years. Such major Chinese ecommerce operators as Alibaba Group Holding Ltd., JD.com Inc. and the Amazon China subsidiary of Amazon.com Inc. have created special sections of their online shopping websites featuring imported goods sold under the special cross-border rules. Those rules allow foreign companies to store items in 10 free-trade zones without clearing customs, and then send them through an expedited customs process when a Chinese shopper places an order.

They also allow the sale, up to the limit for personal use— CNY 1,000 today and CNY 2,000 when the new rules take effect in April 2016—of goods that have not been authorised for sale in China, as long as they have been found safe in their home country.

Chinese consumers have taken advantage of the cross-border ecommerce rules to buy significant quantities from foreign web merchants. China’s customs authority reported this month that the first seven of the free-trade zones established in China since late 2013 handled 100 million inbound parcels purchased from foreign e-tailers with a total value of USD 2 billion.

The relaxed rules on purchases from foreign websites have drawn protests from domestic retailers who say they have to pay import duties on all goods they bring into the country and charge consumers the national 17% value-added tax. Gong Dingyu, founder and chief operating officer of Chinese children’s product retail chain Leyou, tells that the new rules represent of a different way to tax goods purchased from overseas e-retailers, the source cites.

“The old policy is unfair because traditional trading companies and physical stores don’t have the same favorable policy as cross-border ecommerce,” Gong says. “Also, without products being monitored and inspected by the Chinese government, online consumers could buy imported products with quality issues.”