(This story was originally published by Internet Retailer)
The new rules, to take effect in April, provide an exemption from import duties for purchases from foreign websites of up to 2,000 yuan ($306) but add a sales tax of 11.9% that consumers don’t pay today. That sales tax is still less than the 17% value-added tax consumers pay when shopping in stores in China.
The existing rules, which mirror the regulations for consumers bringing in purchases from abroad or receiving them by mail from friends overseas, allows a consumer to import up to 1,000 yuan ($153) worth of products at a time for personal use, up to 20,000 yuan 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 50 yuan ($7.65.) That 50-yuan 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 are hit with a 50% duty tax, says 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:
Thus, under existing rules a Chinese consumer who buys a shirt for $50 on a foreign e-commerce site pays a fee of $10 (20% duty on a $50 purchase), whereas under the new rules he would pay only $5.95 (no duty, but a sales tax of 11.9%.) However, a consumer buying $30 of powdered milk today would pay no duty or sales tax (the duty would be $3, 10% of $30, but that is waived because no fee is charged if the duty is below 50 yuan ($7.65)), whereas under the new rules she would pay $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 e-commerce rules that China has adopted in recent years. Such major Chinese e-commerce 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 sites 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—1,000 yuan today and 2,000 yuan when the new rules take effect in April—of goods that have not been authorized for sale in China, as long as they have been found safe in their home country. That’s a big deal for sellers of products like cosmetics and food that can take years to gain approval from the Chinese government for domestic sale.
Chinese consumers have taken advantage of the cross-border e-commerce 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-retailers with a total value of $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 Internet Retailer, that the new rules represent of a different way to tax goods purchased from overseas e-retailers.
“The old policy is unfair because traditional trading companies and physical stores don’t have the same favorable policy as cross-border e-commerce,” Gong says. “Also, without products being monitored and inspected by the Chinese government, online consumers could buy imported products with quality issues.”
JD.com is No. 1 in the Internet Retailer 2015 China 500 and Amazon China No. 5. While Alibaba’s big online marketplaces Taobao and Tmall account for about three-quarters of online purchases in China, Alibaba is not ranked because it is a marketplace operator and not the merchant of record for any sales on its sites.