China Tax-Rule Changes Seen Lifting Korea Cosmetics Sales Online

  • Government to adjust taxes for cross-border e-commerce: report
  • Cosmetics imports to benefit as changes lower price, PwC says

Imported beauty products such as eye creams and moisturizing gels from L’Oreal SA’s Lancome and Korea’s Amorepacific Corp. sold online could become cheaper for Chinese consumers as the government continues to tweak its e-commerce tax policy.

A year after introducing special treatment for a port district in the eastern city of Hangzhou, where goods are traded at lower tax rates to promote “cross border e-commerce,” China’s State Council broadened the trial to 12 more cities as it pushes to expand its online retail industry. The government is expected to adjust the taxes again in April, the official Xinhua News Agency’s Economic Information Daily reported this month.

While details of the changes haven’t been released, the effect will be mixed, with lower-end products such as foods seeing a rise in prices while higher-end items such as cosmetics and electronics may become cheaper, the report said. Discounted value-added and consumption taxes are expected to be expanded nationwide and replace a special tax for bonded imports, according to the report.

“Cosmetics will be the biggest beneficiary after the tax adjustment," said Catherine Tsang, a Hong Kong-based tax partner at PricewaterhouseCoopers LLP. As beauty and personal care is one of the most popular category among imports bought by China’s Internet shoppers, any price cuts will further boost the market, Tsang said in an interview.

Riding on a wave of popularity from South Korea’s TV dramas and music, Amorepacific’s Etude House and other brands from the country are in demand among Chinese customers. For Korean products, cross border e-commerce has become a more direct and cheaper way to expand in China compared with setting up store networks, Tsang said.

Online sales of imported goods have grown at a compounded rate of 63 percent in the five years to 2015, reaching 638 billion yuan ($98 billion) and accounting for 17 percent of China’s total online retail sales, according to data from Mintel Group Ltd.

The most popular categories of products being purchased online in China are consumer electronics, clothing and shoes, appliances, food and beverage, and beauty products, according to research firm Euromonitor International.

Changes to promote cross-border e-commerce include:

* China started pilot program with a zone in Hangzhou in March 2015
* Trial expanded Jan. 2016 to Tianjin, Shanghai, Chongqing, Hefei, Zhengzhou, Guangzhou, Chengdu, Dalian, Ningbo, Qingdao, Shenzhen, Suzhou
* Parcel tax in zones set at 10% (food, infant items), 20% (electronics, apparel), 30% (high-end watches), 50% (cosmetics, alcohol)
* Tariffs waived for items that incur taxes below 50 yuan

While food and baby items such as diapers may cost more after the April adjustments because of their current lower tax rates, those imports may remain attractive as China’s growing middle-class are becoming more concerned about health and are willing to pay more for quality, daily necessities, PwC’s Tsang said.

“That’s why the demand for imported goods is increasing so fast,” she said. ”China’s consumer now are less price-sensitive especially to products they eat or use on their skins.”

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