Chinese shoppers wanting to buy overseas brands of milk powder and nappies on the e-commerce platform Tmall have been jolted by an unexpected message: their foreign purchases could be delayed by up to 14 days as the country undergoes “a customs system upgrade”.
That was one way of putting it. Another description might be that the delays were due to ‘customs chaos’.
Since last Friday – when the authorities suddenly introduced new taxes on online purchases of imported goods – the Rmb240 billion ($37 billion) business in cross-border e-commerce sales has been in tumult. Websites have taken down products, bonded warehouses have stopped issuing goods and foreign producers are desperately trying to work out the impact on their sales campaigns.
Even the People’s Daily voiced disapproval of the way the directive had been handled, saying the “abrupt introduction of the new regulation has disrupted the market”.
The newspaper went on to quote Xu Ping, the president of a bonded warehouse company in Henan, as saying that the government ministries behind the move had acted “questionably”, adding “They did not do adequate research before implementing the new policy… which has resulted in inconvenience and increased risk.”
So what went wrong? Well, on March 24 the Ministry of Finance announced that all online purchases of foreign goods from April 8 would be liable for VAT and consumption taxes. This more complicated system replaces the older one in which the overseas purchases were subject to a parcel tax – usually equivalent to about 10% of the good’s worth.
In effect, retail goods bought online will no longer be treated as personal postal goods but as imported goods, which are subject to import VAT and consumption tax.
The government said it was introducing the higher tariffs to level the playing field with bricks-and-mortar retailers by treating personal purchases more like wholesale orders. But guidance on the changes has been lacking, leaving shoppers wondering whether even foreign holiday purchases could end up being subject to the higher taxes and companies unclear about how best to price their imported goods.
At the heart of the row is a list of 1,142 products – and the new levels of consumption tax that they now incur.
Food, mobile phones and toys are generally in the 15% bracket; medical equipment, most white-goods and sports equipment are in the 30% category, while alcohol, high-end cosmetics and expensive sports equipment are in the 60% band.
The problem is that some products could fall into more than one category, while some popular purchases (such as UHT milk) have been left off the list altogether.
Australian dairy producers such as Blackmores, Murray Goulburn and Bellamy’s were immediately hit by the confusion, and their share prices have suffered since the new tax regime was announced.
An opinion piece in the Australian Financial Review called on its national politicians “to say loudly and clearly, this is not what the FTA is about; this is not what friends do to each other” and Australian Prime Minister Malcom Turnbull is expected to convey his concerns during a trip to China this week.
For individual consumers, imported items will become more expensive but not dramatically so. Any purchase of up to Rmb2,000 appears to be exempt from consumption tax, while VAT, which is normally 17% in China, will be charged at 11.8 %.
Over the course of a year an individual will be allowed to buy up to Rmb20,000 worth of items before triggering the full payments of VAT and consumption tax.
But plenty of consumers still took to social media to complain about the increased prices. “Why are they increasing taxes when we cannot buy safe equivalents at home?” asked one angry netizen. “The government should only protect domestic producers when they can produce trustworthy goods,” said another.
For now the hastily introduced taxes raise more questions than answers, not least how the tax authorities will go about monitoring whether millions of individual shoppers have exceeded their annual Rmb20,000 quota.
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