China’s General Administration of Customs has postponed the rollout of the new cross-border sales tax regulations amid fears of an e-commerce slowdown.
China has postponed the rollout of its new cross-border sales tax amid fears of a slowdown in cross-border e-commerce.
The new cross-border tax policy, which was announced earlier this year, would have meant tighter customs regulations and a higher tax rate on overseas goods sold into China via e-commerce. The new system would have placed a heavier burden on online retailers selling into China via the ‘direct purchase model.’
China’s General Administration of Customs has announced the postponement of some of the new tax policies across 10 pilot zones: Tianjin, Shanghai, Hangzhou, Ningbo, Zhengzhou, Guangzhou, Shenzhen, Chongqing, Fuzhou and Pingtan.
The registration and filing of cross-border commodities — including cosmetic products, baby formula, and some foods for medical use — have been temporarily suspended in the pilot regions.
Delaying the new taxation means that overseas retailers selling into China will still have access to the direct purchase model, which allows for e-commerce packages to be classed as ‘parcels’ rather than imported goods, thereby incurring a lower tax rate.
Chinese customs officials say the postponement of the cross-border sales tax rollout will help facilitate a smooth transition to the new tax policy.
The original tax policy was launched to eliminate the price advantage on imported e-commerce purchases — effectively a protectionist move to aid China’s retail industry. However, according to CNBC, data for the first week the new rules took effect showed a more than 60 percent decline in cross-border e-commerce orders.
According to some analysts, the cross-border sales tax was also aimed at encouraging foreign retailers to set up full operations in China, rather than simply shipping into China. However, for many online retailers, especially smaller and growing retailers, this is simply not a feasible option.
A heavier tax burden on foreign retailers may well prompt many brands to rethink their move into China, which is something the Chinese Government is eager to avoid, as it works to open its borders to commerce, not shut them down.