Tax change hits cross-border delivery

“Haitao”, a term often used in eCommerce circles, refers to the growing practice of Chinese mainland consumers who shop from overseas-based websites and receive their goods via cross-border delivery services.
New tax regulations in April directly impact businesses in this sector, including companies that exhibited at the 2016 Cross-Border eCommerce Industry Exhibition in Guangzhou in July, reports Hong Kong Means Business, the newsletter of the Hong Kong Trade Development Council (HKTDC).
Under the new policy, a maximum tax-free allowance of Rmb2000 (US$300) for each transaction is specified, plus a maximum of Rmb20,000 worth of imports a year for any one individual.
Only goods specified on one of two lists, the List of Cross-Border eCommerce Retail Imports and the List of Cross-Border eCommerce Retail Imports (Second Batch), can be deemed to be bonded imports. Goods not on the lists are covered either by the relevant general trade policy or are considered liable under the personal postal articles tax.
These changes are proving to be a challenge for the mainland’s cross-border eCommerce industry. Overall, small- and medium-sized companies are being hit hardest. If the goods they specialise in are not on either list, they are obliged to import these items under the general trade system. This inevitably involves submitting a substantial number of documents including contracts, invoices and certificates of origin. In some cases, the importing company may not be able to obtain such documents from overseas sellers.
Sharp fall
Some small businesses have reportedly only taken goods out of bonded storage, rather than putting them in, resulting in a sharp fall in the number of orders following the tax changes.
Following approval by the State Council, a one-year transitional period has subsequently been introduced. It was agreed that bonded imports entering the bonded zones in 10 cross-border eCommerce pilot cities would be exempt from customs clearance certificate checks during this time. The 10 designated pilot cities are Chongqing, Fuzhou, Guangzhou, Hangzhou, Ningbo, Pingtan, Shanghai, Shenzhen, Tianjin and Zhengzhou.
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.
While this one-year transitional term has given the mainland cross-border eCommerce traders a grace period, fundamental changes to the industry appear unavoidable.
“The implementation of this new legislation allows us to see our way forward more clearly,” says Guangdong Funsens Network Technology spokesman Huang Xiaoyan. “We have already launched several initiatives in response to the changes outlined in the policy, including setting up a distribution centre for foreign goods in Guangzhou’s Nansha district.”
Funsens’ direct-purchase store has adopted the O2O model of having both an offline experience centre and an online purchase platform – a first for the mainland. This set-up provides customers a hands-on experience of overseas goods before buying online.
At the experience centre, goods are designated as either sourced overseas or “duty-paid”.
While buyers can take away duty-paid goods immediately, they must register in advance and place orders online for overseas-sourced goods. These are then sent to them later from the company’s bonded warehouse.

Origin tracking
Buying via the Funsens platform is seen as a guarantee of reliability, which is considered especially important for sought-after items such as baby formula. The system also lets buyers trace goods back to their point of origin via Smart Inspect, a cross-border eCommerce quality-tracking platform run by the Nansha Entry-Exit Inspection and Quarantine Bureau.
No so directly affected by the legislative changes is Senda International Trade Co. According to marketing director Zhou Guoping, this is because its goods typically enter the mainland market via the general trade system. He also says that maintaining a high level of service is important for cross-border eCommerce, and it is equally crucial to offer a wide variety of value-for-money goods.
Some mainland consumers have concerns the revised tax policy will inevitably entail paying more for online goods, but Huang points out that as the tax rate varies across different goods categories, certain purchases are now actually cheaper.
Before the tax changes, haitao shoppers typically only bought goods priced less than Rmb100.
This was because items such as imported cosmetics that cost more than Rmb100 were subject to a 50 per cent personal postal articles tax. Since the tax changes, a lower overall rate of 32.9 per cent applies to imported cosmetics. Consumers buying products priced more than Rmb100 now actually get a better deal.
Advantage lost
In the past, consumers mainly bought overseas-sourced cosmetic products through overseas shopping agents. In light of the changes, these agents no longer have a real price advantage. Also, direct consumers are now assured of a high level of after-sale service and proper resolution of any issues related to faulty products.
While prices for a some maternal and infant products have increased as a result of the tax reforms, Huang believes the sector remains robust, mainly because many mainland consumers are keen to make quality purchases, with a premium price acceptable to them.
He says many mainland consumers also prefer the overseas direct-delivery model because goods sent directly by foreign companies are more reliable. It also means 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 still offer an overseas direct-delivery service. However, while this model has a price advantage compared to delivery from bonded warehouses, it is somewhat slower.

Australian research
Mainland companies, however, are not the sole providers of overseas direct-delivery services.
Indeed, several Australian companies are well aware of mainland consumers’ keen demand for this service. One, Premium International, has conducted market research into the issue, subsequently determining that many mainland consumers actually prefer overseas direct delivery.
Premium International acts as an agent for professional healthcare products, as well as Australian mother-and-child brands. It also sources direct from international suppliers. It offers direct delivery from its overseas warehouses, with a guaranteed turnaround time of seven to 10 days.
Despite the changes, global cross-border purchasing, exporting and wholesaling specialist Senda has had rapid growth, Zhou says the wholesale value of its trade increased from Rmb8 million at the beginning of January 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.
The reliable sourcing of goods and efficient logistics are most important when it comes to cross-border eCommerce. Access to primary sources ensures a continuous supply and helps maintain product quality.

Logistics system
Zhou says Senda handles more than 1000 brands and 50,000 individual items from 30 countries and regions. It has established a logistical system comprising a duty-paid warehouse, an overseas warehouse and a bonded warehouse for overseas goods. As part of its process of providing goods the company seeks customer feedback, adjusting its product mix in line with changing market demands.
Changing demands have also led to overseas brands previously unknown to mainland consumers venturing into the market. This has partly been driven by demand from younger consumers for more tailored products.
One particular beneficiary has been Beck, a Japanese supplier of optical products. According to its mainland representative Dong Chun, suppliers must continually source quality products to meet changing consumer demands.
As well as so-called cosmeceuticals, the demand for men’s skincare products has also been growing across the mainland. Euromonitor reports that retail sales of men’s skincare products and cosmetics in China will enjoy an average annual increase of 13.5 per cent between this year and 2019, compared with a global average of 5.8 per cent. By 2019, it estimates, the mainland market will be worth about Rmb1.9 billion.
Hong Kong’s Warwick International is the sole agent across greater China for Vitaman, an Australian brand of natural men’s skincare products. Its representatives say male consumers across the mainland now more spending power, which has led to growth in demand. Seeing clear business opportunities ahead, the company plans to introduce a wider range of products to mainland consumers.
The HMTDC lists more China market opportunities on its website.

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