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China to Impose New Tax on Cross-Border E-Commerce

Chinese consumers will soon have to pay new taxes on foreign goods bought online, making the costs of those items rise in the midst of a slowing market.

Starting Apr. 8, consumers buying imported goods via e-commerce will have to pay most of a 17 percent value-added tax (VAT) and a consumption tax, where applicable, according to China’s Ministry of Finance.

The tax is expected to be a more fair competition mechanism for cross-border businesses and traditional retailers, as online purchasing agents have evaded existing taxes via multiple methods, including repackaging and mailing products separately, China Daily reported. The move comes as Chinese consumption of foreign goods continues to rise.

Up until now, e-commerce retailers only had to pay a postal articles tax, a collective tax that includes an imported goods tariff, import VAT and consumption tax. Imported goods under 1,000 yuan ($154) were subject to the tax, which was most often at a rate of 10 percent. Goods with taxes under 50 yuan ($8) are exempt from customs tax.

Wang Wei, director of the Institute of Market Economy of Development Research Center of the State Council, told China Daily that part of the reason for e-commerce’s popularity compared to traditional import trade is that the tax burden is relatively low.

In 2014, cross-border e-commerce and overseas consumption reached in the hundreds of billions of yuan, but revenues from the postal articles tax totaled less than 1.3 billion yuan (around $200 million), indicating a considerable loss of tax revenue.

With the new policy, a maximum of 2,000 yuan ($309) of single transfer in cross-border retail will be allowed, with a maximum of 20,000 yuan ($3,087) per person per year. Provided transactions remain within that range, the Ministry of Finance says the tax rate will be 0 percent at least temporarily, and goods bought beyond that will face the full tax on trade.

The tax rate will be nearly double the rate it is now, but the Ministry of Finance says consumers will be little affected.

But as Zhang Zhendong, CEO of cross-border e-tailer, told Caixin, “For cross-border shopping firms that relied solely on differing tax rates under preferential policies for e-commerce, the times ahead will be tough because their business model will collapse if they don’t transform quickly.”