About HKTDC | Media Room | Contact HKTDC | Wish List Wish List () | My HKTDC |
繁體 简体
Save As PDF Email this page Print this page

Cross-Border E-Commerce Sector Meets Challenges of New Tax Regime

Although enacted four months ago, exhibitors at the 2016 Cross-Border E-Commerce Industry Exhibition were still coming to terms with the direct implications – both positive and negative – of the new tax legislation governing the sector.

Photo: Time for a change: Cross-border e-commerce goods adjust to new tax regime.
Time for a change: Cross-border e-commerce goods adjust to new tax regime.
Photo: Time for a change: Cross-border e-commerce goods adjust to new tax regime.
Time for a change: Cross-border e-commerce goods adjust to new tax regime.

Haitao is a term that is ever more frequently bandied around in e-commerce circles. Essentially, the term refers to the growing practice of mainland consumers shopping online via overseas-based websites and then receiving their goods via cross-border delivery services. With the practice seemingly snowballing, this year's International Cross-Border E-Commerce Industry Exhibition showcased an increasingly competitive industry, with many exhibitors only too keen to highlight their enhanced range of goods and services.

This year's event took place just four months after changes were introduced to the tax regime governing cross-border e-commerce imports. Jointly issued by The Ministry of Finance, The General Administration of Customs and The State Administration of Taxation Bureau, The Circular on Tax Policies for Retail Import in Cross-Border E-Commerce specified a maximum tax-free allowance of RMB2,000 for each transaction and a maximum of RMB20,000 worth of imports per person per year.

Eleven departments, including The Ministry of Finance, The Ministry of Industry and Information Technology and The General Administration of Customs jointly issued the List of Cross-Border E-Commerce Retail Imports on 7 April. Thirteen departments, including The Ministry of Finance, The National Development and Reform Commission and The Ministry of Industry and Information Technology then jointly released the List of Cross-Border E-Commerce Retail Imports (Second Batch) on 15 April. Only goods specified on one of either of these two lists can be deemed to be bonded imports. In the case of goods not on either list, these are covered either by the relevant general trade policy or are considered liable to the personal postal articles tax.

Photo: Duty-paid goods on show.
Duty-paid goods on show.
Photo: Duty-paid goods on show.
Duty-paid goods on show.

The changes to the tax regime have proved a challenge for many engaged in China's cross-border e-commerce industry. Overall, it was the small- and medium-sized operators that were hit hardest. If the goods they specialised in were not on either list, they were obliged to import any such items under the general trade system. This inevitably requires the presentation of a substantial number of documents, including contracts, invoices and certificates of origin. In a number of cases, it may not be possible for the importing company to obtain such documents from overseas sellers. According to a number of reports, some small businesses only took goods out of – not into – bonded storage and thus saw a sharp fall in their number of orders after the tax changes were introduced.

Subsequently, following approval by the State Council, a one-year transitional period was introduced. During this time, it was agreed that bonded imports entering the bonded zones in 10 cross-border e-commerce pilot cities would be exempt from Customs Clearance Certificates checks. The 10 designated pilot cities were Tianjin, Shanghai, Hangzhou, Ningbo, Zhengzhou, Guangzhou, Shenzhen, Chongqing, Fuzhou and Pingtan. It was also agreed that import permits, registration or filing would not be required for first-time imported cosmetics, baby formula, medical equipment or special food products.

Customer Experience and Trust

While this one-year transitional term has given China's cross-border e-commerce operators a grace period, fundamental changes to the industry appear unavoidable. Understandably, the long-term implications of this regulatory change were of concern to many at the recent Guangzhou e-commerce event.

Keen to address the issue, Huang Xiaoyan, a spokesman for Guangdong Funsens Network Technology, said: "The implementation of this new legislation allows us to see our way forward more clearly. We have already launched a number of new initiatives in response to the changes outlined in the policy.

Photo: Korean skincare products.
Korean skincare products.
Photo: Korean skincare products.
Korean skincare products.
Photo: Overseas-sourced milk powder.
Overseas-sourced milk powder.
Photo: Overseas-sourced milk powder.
Overseas-sourced milk powder.

"These have included setting up a distribution centre for foreign goods in Guangzhou's Nansha district. This is in line with our belief that reliable supply is a vital element in maintaining good customer service".

Funsens' direct purchase store has adopted the O2O model of having both an offline experience centre and an online purchase platform, the first such operation to open on the mainland. This set-up allows customers to have a hands-one experience of overseas-sourced goods prior to purchasing online.

At the experience centre, goods are designated as either overseas-sourced or 'duty-paid'. While purchasers can take duty-paid goods away immediately, they must register in advance and place orders online for overseas-sourced goods. These are then later dispatched to them from the company's bonded warehouse.

Buying via the Funsens platform is seen as a guarantee of reliability, something that is seen as particularly important for such sought-after items as baby formula. The system also allows buyers to trace goods back to their point of origin via Smart Inspect, a cross-border e-commerce quality tracking platform operated by the Nansha Entry-Exit Inspection and Quarantine Bureau.

Less directly affected by the legislative changes was Senda International Trade Co. According to Zhou Guoping, the company's Marketing Director, the new tax policy had had little effect on its operations as its goods had typically always entered the mainland market via the general trade system. He also maintained that maintaining a high level of service was of the utmost importance with regard to cross-border e-commerce, while it was equally important to offer a wide variety of goods that were all good value for money.

Direct Delivery

Overall, it appears that a number of mainland consumers have concerns that the revised tax policy will inevitably entail paying more for haitao goods. Huang, however, pointed out that as the tax rate now varies across a number of different categories of goods, certain purchases are now actually cheaper.

Photo: A Korean cosmetic range.
A Korean cosmetic range.
Photo: A Korean cosmetic range.
A Korean cosmetic range.

Before the tax changes, haitao shoppers typically only bought goods priced below RMB100. This was because items such as imported cosmetics that cost more than RMB100 were subject to a 50% personal postal articles tax. Since the tax changes, a lower overall rate of 32.9% now applies to imported cosmetics. Now consumers buying products priced above RMB100 actually get a better deal.

In the past, consumers largely bought overseas-sourced cosmetic products via overseas shopping agents. In the light of the changes, these agents no longer have a real price advantage. Additionally, direct consumers are now assured of a high-level of after-sale service and proper resolution of any issues related to faulty products bought via cross-border e-commerce platforms.

Although prices for a number of maternal and infant products have increased as a result of the tax reforms, Huang believes the sector remains robust. This is largely because many mainland consumers are keen to make quality purchases, with a premium price acceptable to them.

According to Huang, many mainland consumers also prefer the overseas direct delivery model. This is not just because goods dispatched directly by foreign companies are more reliable, but also because they will not be affected by the new policy in the short term and remain subject to the personal postal articles tax.

In line with this, many stores on the Funsens platform are still offering an overseas direct delivery service. However, while this model has a price advantage compared to delivery from bonded warehouses, it is somewhat slower.

Photo: Toothpaste and dental products.
Toothpaste and dental products.
Photo: Toothpaste and dental products.
Toothpaste and dental products.

Mainland companies, however, are not unique in providing an overseas direct delivery service. Indeed, several Australian companies are well aware of mainland consumers' keen demand for this service. One Australian exhibitor, Premium International, had gone as far as to conduct market research into the issue, subsequently determining that many mainland consumers actually prefer overseas direct delivery.

Premium International acts as an agent for several professional healthcare products, as well as Australia-sourced mother-and-child brands. It also directly sources from a wide range of international suppliers. At present, it offers direct delivery from its overseas warehouses, with a guaranteed seven to 10 days turnaround time.

Despite the changes, Senda, a specialist in global cross-border purchasing, exporting and wholesaling, has enjoyed rapid growth, According to Zhou, the wholesale value of its trade increased from RMB8 million at the beginning of January 2016 to RMB20 million by the end of June. He sees this as a clear indication that the new tax policy has not diminished mainland consumers' appetite for overseas-sourced goods.

Expanding Ranges

The reliable sourcing of goods and efficient logistics are of the utmost importance when it comes to cross-border e-commerce. Access to the primary sources not only ensures a continuous supply, but also helps to maintain product quality.

According to Zhou, Senda handles more than 1,000 brands and 50,000 individual items from 30 countries and regions. In order to manage this range, it has established a multi-function logistical system consisting of a duty-paid warehouse, an overseas warehouse and a bonded warehouse for overseas goods. As part of its process of providing goods to customers, the company looks to collect their feedback, adjusting its product mix in line with changing market demands.

These changing demands have also led to a number of overseas brands previously unknown to mainland consumers venturing into the market for the first time. This has partly been driven by the demand by younger consumers for more tailored products.

Photo: Beck’s Sante eye-drop range.
Beck's Sante eye-drop range.
Photo: Beck’s Sante eye-drop range.
Beck's Sante eye-drop range.
Photo: Horse oil from Beck.
Horse oil from Beck.
Photo: Horse oil from Beck.
Horse oil from Beck.

One particular beneficiary here has been Beck, a Japanese supplier of optical products. Dong Chun, the company's mainland representative, said: "Our Sante eye-drops are now very popular in China." According to Dong, mainland consumers have a particular preference for this brand as it offers a range of eye-drops for different requirements.

he range of eye-drops on offer from Nihon Kohso, a fellow Japanese company, were popular in China last year, although demand has dropped off notably of late. According to Dong, consumer preferences change very quickly and suppliers must continually source good quality products in order to meet these changing demands. More recently, he has noted that Kao's steam-generating thermal eye mask and bahyu (horse oil) cream have become must-buys for many consumers.

Photo: The Vitaman men’s toiletries range.
The Vitaman men's toiletries range.
Photo: The Vitaman men’s toiletries range.
The Vitaman men's toiletries range.

In addition to so-called cosmeceuticals, demand for men's skincare products has also been growing across the mainland. According to Euromonitor, the retail sales of men's skincare products and cosmetics in China will enjoy an average annual increase of 13.5% between 2016 and 2019, compared with a global average of 5.8%. By 2019, the mainland market is estimated to be worth some RMB1.9 billion.

Hong Kong's Warwick International is the sole agent across Greater China for Vitaman, an Australian brand of 100% natural men's skincare products. According to staff manning the company's stand, male consumers across the mainland now have increasing spending power, something that has seen their demand for cosmetic products inevitably grow. The company now sees clear business opportunities ahead and hopes to introduce a wider range of products to mainland consumers in due course.

The International Cross-Border E-Commerce Industry Exhibition was held at the Pazhou Poly World Trade Expo Center, Guangzhou from 20-22 July, with some 300 exhibitors in attendance.

Xing Bin, Special Correspondent, Guangzhou

Relevant policy documents (in Chinese only):
Circular on Tax Policies for Retail Import in Cross-Border E-Commerce
Announcement of the List of Cross-Border E-Commerce Retail Imports
Announcement of the List of Cross-Border E-Commerce Retail Imports (Second Batch)
Official in Charge of the Tariff Department of the Ministry of Finance Discusses the Supervisory Measures for Cross-Border E-Commerce Retail Imports During the Transitional Period

Content provided by Picture: HKTDC Research
Comments (0)
Shows local time in Hong Kong (GMT+8 hours)

HKTDC welcomes your views. Please stay on topic and be respectful of other readers.
Review our Comment Policy

*Add a comment (up to 5,000 characters)