The new tax regime for direct retail imports is not a strike against foreign exporters, but a regulatory lever to build markets, and develop logistics chains and consumer protections.
General Administration of Customs (GAC) implemented a new tax regime for 1,142 categories of direct retail imports on 8 April 2016, formalising e-commerce trade under the import tax system. This shifts small-scale direct-retail cross-border trade from the postal system to regular import channels, overcoming
- limitations of the EMS system, under which customs clearance is possible in only seven postal ports
- more parcels flooding GAC than it can effectively inspect for quality
- inadequate quarantine supervision of milk powder, food and nutritional supplements entering China
Sixty-five ports will now process direct retail imports, raising logistical and customs inspection efficiency.
Foreign exporters previously used the postal service to trade goods under the parcel-tax system; exemptions allowed most goods to pass duty-free.
Under the new arrangements goods
- up to C¥2,000 receive a 30 percent discount on full import VAT and sales taxes, with no import duty
- over C¥2,000 are subject to full import duty, import VAT and sales taxes
Raising the duty-free threshold from C¥1,000 to C¥2,000 exempts almost three quarters of direct retail items from import duty. Some goods, such as high-end cosmetics and clothing, will now be taxed at a reduced rate. Overall taxes will be higher for some 83 percent of direct retail imports when accounting for VAT and sales taxes. The 30 percent discount is likely transitional until the national e-commerce law comes into effect.
Shifting direct retail imports into the regular import system will give consumers access to higher quality, safer and cheaper goods. Ultimately, market growth and improved logistics will benefit foreign exporters
- the forthcoming 13th 5-year plan for e-commerce will seek to promote internet infrastructure and traditional logistics chains up to ‘Internet+distribution’ standards, developing domestic markets and tapping into the latent consumer base in the hinterland
- new palleting regulations and e-labelling will encourage economies of scale in logistics, making goods cheaper for consumers
- domestic logistics firms will become the transfer point for cross-border trade and open up new markets for exporters
- new laws on food safety and product quality will reflect national consumer protection priorities
- a national e-commerce law focusing on digital contracts, fair market access and consumer protection is expected to be passed in early 2017
8 apr 2016: new tax regime for direct retail imports comes into effect
7 apr 2016: MoF releases positive list, a catalogue of 1142 products that fall under the new regime
24 mar 2016: MoF releases details of new tax regime for direct retail imports, to come into effect 8 April
23 mar 2016: MofCOM releases annual plan for e-commerce and digitisation 2016
23 mar 2016: MofCOM releases national e-commerce logistics development plan 2016-20
16 mar 2016: Shanghai launches first cross-border e-commerce pilot zones
14 mar 2016: NPC Financial and Economic Affairs Committee finishes draft national e-commerce law
3 mar 2016: NDRC, MoF, MofCOM and other ministries issue ‘Opinions on developing logistics to promote investment and consumption’
15 jan 2016: State Council approves 12 cross-border e-commerce pilot zones in Tianjin, Shanghai, Chongqing, Hefei, Zhengzhou, Guangzhou, Chengdu, Dalian, Ningbo, Qingdao, Shenzhen and Suzhou
24 dec 2015: MoF and MIIT launch pilots subsidising broadband access in rural villages
14 dec 2015: MIIT issues action plan to provincial authorities on implementing Internet+ for 2016-18
15 oct 2015: State Council launches initiatives to build rural e-commerce infrastructure
24 sep 2015: MoA, NDRC and MofCOM issue action plan promoting rural e-commerce
31 aug 2015: MofCOM and 18 other agencies release plan to extend e-commerce networks by 2020, part of the small-town urbanisation strategy
4 jul 2015: State Council releases ‘Guiding Opinions on Internet+’
5 mar 2015: Li Keqiang introduces ‘Internet+’ policy to guide new industry development, in the annual government work report
tax reform should be implemented more carefully
Dai Yuxi 戴玉玺 | Beijing News
Local supervision departments and businesses are ill prepared, argues Dai, for a hastily implemented tax policy, which will hit bottom lines. Free trade zones are nearly paralysed by having to block orders placed prior to the new rules. Products not on the positive list, but already shipped to bonded zones prior to the tax change, will have to be returned overseas. To prevent financial losses, says Dai, ministries should have surveyed business inventories and provided enough time for IT system upgrades before implementing the new system.
end of the low-tax era for overseas purchasing
Guo Liqin 郭丽琴 | China Business News
The positive catalogue shifts business-to-consumer products into the normal import trade system, and promotes product diversification and premium brands. Under the parcel tax system, only postal ports—Shanghai, Guangzhou, Zhengzhou, Ningbo, Chongqing, Hangzhou and Shenzhen—handle customs clearance. The new policy allows 34 airports and 31 bonded ports to clear customs, improving logistics efficiency and reducing logistics costs by 30 percent. EMS was previously the sole logistics provider. Through airports and bonded ports, private logistics companies can now process imports.
Allowing cross-border e-commerce to avoid the parcel tax gives imported goods an unfair advantage, harms the domestic economy, and causes loss of revenue, according to Xinhua citing Zhang Bin 张斌 CASS National Institute of Economic Strategy. The parcel tax was meant for non-tradable goods, and overseas purchasing is a form of trade activity. Under the new policy, goods still enjoy a considerable tax subsidy. Customs clearance will be shortened from 1-2 months to 1-2 weeks. Price shocks may reduce consumption in the short term, argues Qiu Huang 邱煌 of Jindong, but in the long run, the policy will improve consumer experience and promote logistics upgrading.
in the spotlight
General Administration of Customs 海关总署
A ministerial agency directly under State Council, GAC is responsible for levying import duties, and value-added and sales taxes, on imported goods. GAC has been pursuing a national tax collection consolidation agenda. It introduced a centralised taxation system to all customs offices in November 2015. The new cross-border e-tax system favours large logistics enterprises which can easily integrate with the central data system.
Shi Zhengwen 施正文 | China University of Political Science and Law, Institute for Fiscal and Tax Law director
A former MoF researcher, Shi has advised on drafting the Basic Tax Law, the Corporate Income Tax Law and the Budget Law. Importers owe their success to low tax burdens, argues Shi, and tax reform is needed to level the playing field, making domestic products more internationally competitive. After the 2015 Tax Collection Management Law draft, Shi proposed unifying taxpayer identification systems to strengthen collection.
Zhang Ji 张骥 | Ministry of Commerce vice minister
Former vice director of MofCOM Office for Import and Export of Machinery and Electronic Products, Zhang was promoted to vice minister in mid 2015. Now the face of MofCOM’s cross-border e-commerce strategy, Zhang favours business-to-business over business-to-consumer models. An agglomerated enterprise model can lower supervision costs, says Zhang, and speed up customs clearance. Promote logistics development, says Zhang, to develop modern service industries through e-commerce.
Zhang Li 张莉 | Ministry of Commerce Institute of International Trade and Economic Cooperation researcher
The new tax reform is business friendly, says Zhang, with the 30 percent discount and C¥2,000 exemption. Full rates will be implemented in the future. More policies are expected to regulate the market, forcing firms to reposition and improve quality. These should better differentiate cross-border e-commerce tax from normal import tax, to provide incentives for business-to-business growth. Uniform and tiered tax rates can be incentive levers. Product classification lists should be used to promote high-end imports.
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