The easing of the China cosmetics tax burden will have little effect, says US research firm Jefferies.
Only a moderate increase is likely in domestic demand for cosmetics as the price difference with overseas shopping is still high. The policy change is also predicted to only moderately help offline sales of top global brands.
Under the new legislation, high-end cosmetics priced up to RMB10 (US$1.50) a millilitre or up to a unit will be subject to a consumption tax rate of 15 per cent, while the tax for lower-priced cosmetics will be waived. Previously, all cosmetic products were subject to a 30 per cent tax.
Other taxes on cosmetics, including import tax and VAT, are unchanged at 10 and 17 per cent respectively.
In a report, Jefferies says the tax reduction could add pressure to beauty and healthcare company Sasa, which generates 68.7 per cent of its revenue in Hong Kong/Macau from Mainland China tourists. Meanwhile, L’Occitane, which gains 10.2 per cent of its revenue from Mainland China, and could potentially see a “mild benefit” from the tax cut.
Jeffries says cosmetic brands could benefit with more competitive pricing.