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                   China Hikes Cross-border E-Commerce Taxes

   by Joyce Huang

   China has increased taxes on purchases made through cross-border
   e-commerce platforms in a bid to recover revenue losses.

   The new plan is expected to tighten control over the loosely-regulated
   market, while ensuring a much fairer tax base and competition between
   brick-and-mortar importers and cross-border online trade.

   But a last-minute revision of the e-commerce product import list late
   last week caught many operators off guard, leaving them at a loss over
   how to manage the delivery of goods that are no longer permitted.

   No way out

   "Some products, which were previously allowed for cross-border online
   trade are no longer on the list. [Because of that], lots of goods are
   now stuck in bonded warehouses and can't be delivered," said Nick
   Zhong, head of Guangdong Cross-border E-commerce Industry Association's
   member service department.

   "Once excluded by the list, neither goods in transit or on board will
   be admitted into bonded warehouses. That's another major impact," he
   added, conveying concerns expressed by many of the association's 2,000
   e-commerce business members.

   ''

   Imports such as liquid milk, baby formula, fresh fruits and aquatic
   food are not covered by the list, which details the scope of 1,142
   commodities allowed under the new cross-border e-commerce model.

   Liquid milk, which has an expiration date, may be hit the hardest as
   the association estimated that stockpiles worth more than $15.5 million
   may be left in limbo if the regulator won't revise the list soon or
   come up with a solution to fast-track its delivery, according to Zhong.

   Complicated clearance

   In addition, the e-commerce sector is already feeling pained from
   complying with the new clearance system, although Zhong said that it's
   just a matter of time for businesses to get used to the new model.

   For the first week, it is still too early to tell how the new taxation
   plan will impact the industry or its overall sales, although
   competition is sure to get tougher along with price fluctuations
   triggered by hiked taxes, he said.

   Most operators, he added, will watch and wait because big companies
   have the upper hand with supply-chain logistics and clearance
   advantages, while small outfits are looking to maintain a profitable
   niche.

   On the consumer side, many still believe that cross-border shopping
   remains a powerful draw.

   "There is still demand for cross-border products. And our survey showed
   that [the sector's] consumers are not that price sensitive," Zhong
   said.

   ''

   Hiked taxes

   Under the new plan, most cross-border online purchases will be levied a
   combined consumption and import value-added tax (VAT) at a 30 percent
   discount, or 11.9 percent. That compares to such deals' old postage tax
   of 10 percent with a waiver if the tax was less than 50 yuan ($7.70).

   In other words, online cross-border deals, retailed at below 499 yuan
   ($77.20), used to be duty-free, but are now levied with a VAT of 59.4
   yuan.

   However, there are also rate cuts for certain products.

   For example, cosmetic imports, whose tax rate was 50 percent if the
   value of purchases exceeded 100 yuan, will now be levied a lower 32.9
   percent tax.

   A tariff-free cap of 2,000 yuan per transaction and 20,000 yuan for
   yearly transactions is also set.

   "Those [less competitive] individual shopping agents abroad will likely
   meet a setback by the new business model. But, in the long run, the new
   policies help ensure the quality of imports and the tractability of
   their origins with arrangements to facilitate a [sound market] entry
   system," said Tomson Tang, vice chairman of Chinese Electronic Commerce
   Association.

   Tang said he expects the new policies to help push forward the sector's
   healthy development and curtail logistics and environmental costs as
   buyers make small purchases to take advantage of tax waivers.

   ''

   The new plan, moreover, is expected to provide a pricing catalyst,
   encouraging local producer to improve the quality of their products to
   compete with slightly pricier imports, said Hu Xingdou, an economics
   professor at Beijing Institute of Technology.

   With the cost of online shopping climbing, sales of local
   brick-and-mortar stores may see a boost, the professor added.

   Nevertheless, the tax hike adds a burden on local consumers, which
   could adversely affect the country's slowing economy.

   "Chinese consumers have long been shouldering a pretty heavy tax
   burden. Estimates show that locals here pay a [macro] tax bill of 60 to
   65 yuan out of every 100 yuan transaction," Hu said.

   That is higher than the averaged 30 percent tax burden in other
   countries, the professor added.

   According to McKinsey & Co, China's cross-border consumer e-commerce
   amounted to an estimated 259 billion yuan ($40 billion) in 2015, more
   than six percent of its total consumer e-commerce, and it's growing at
   a rate of more than 50 percent annually.
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References

   1. http://www.voanews.com/content/china-hikes-cross-border-e-commerce-taxes/3285233.html