PowerPoint Presentation
1Chinese Import Tariff Adjustments (June, 2015) and the
Impacts
www.reach24h.com
Lucy Lu
Business Development ManagerCosmetic Division
MSc Wageningen University
Telephone: 0571 8971 6531 E-mail:
[email protected]://cn.linkedin.com/in/jiayunlu
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6/17/2015www.reach24h.com2GREAT NEWS!
How much are we actually saving?
6/17/2015www.reach24h.com3
GREAT NEWS!
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TOPICS FOR DISCUSSIONwww.reach24h.com4
Chinese Taxation AdministrationCurrent Chinese EconomyNew
Policies and MeasuresUnderstanding Chinese Taxation on
CosmeticsCase Study Anticipated
OutcomesDiscussionConclusions6/17/2015
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CHINESE TAX ADMINISTRATION6/17/2015www.reach24h.com5
State Tax Bureau System
State Administration of Taxation (SAT)The offices of SAT at
provincial levelPrefecture LevelCounty levelCustoms System:
Collection of customs duty Withholding the import value added
tax and Import Consumption TaxLocal Tax Bureau system Different
collection scopes
Custom duty is subjected to the collection of Custom System
The customs system is responsible for withholding the import
value added tax and import consumption tax
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Current Chinese Economy6/17/2015www.reach24h.com6
In the First Quarter of 2015Economic growth rate: 7%
Retail sales growth: 10%2014 Q1 : 7.3%Predicted growth:
10.2%Losing growth momentum
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Current Chinese Economy6/17/2015www.reach24h.com7Domestic
consumption hit a 24-year low
Composition of Domestic Demandvariables expressed as ratios to
GDP (%)
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Current Chinese Economy
6/17/2015www.reach24h.com8Industrial overcapacity Excessive
corporate debt
GDP and Industrial Production GrowthY-t-Y quarterly growth rates
(%)
Fixed Investment GrowthY-t-Y growth rates (%)
shifting away from a capital-intensive production structure is
important for increasing job growth and ameliorating the
destructive environmental consequences of rapid growth8
Current Chinese Economy2014 Growth of import level Slowed
down
Average annual growth (10-14): 24.7%
Skincare: Average annual growth (13-14): 38.6%
Import value (14): > $1.9 Billion
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Current Chinese Economy6/17/2015www.reach24h.com10In 2014RMB 1
trillion ($165 Billion)Offshore purchases
>100 million Chinese outbound tourists>100% growth from
2009 (47.7 million)Yuans appreciation against $ and Yen propelled
28% growth (Y-t-Y) in 2014
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6/17/2015www.reach24h.com11
Directing 1/3 of overseas expenditures into the domestic market
could drive retail sales growth 0.5 or 1% higher
Current Chinese Economy
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6/17/2015www.reach24h.com12New Policies and Measures
Enrich the choices for domestic consumersFurther boost domestic
demandPush forward structural reformStabilize the economy
growth
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New Policies and Measures
6/17/2015www.reach24h.com13
Reduce import tariff rates
Pilot basisGradually expand the scope of eligible productsIn
combination of the consumption tax reform
Reduce tax rate or maybe even abolish consumption tax for some
commodities
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UNDERSTANDING CHINESE TAXATION on COSMETICS
6/17/2015www.reach24h.com14Import Tariffs
Nature and origin Cosmetics (assuming MFN applicable) :
6.5%-15%Temporary (01-01-2015): 5%-10%
Consumption Taxluxury productsSpecific behavioral consumptionsCT
rate for cosmetics: 30%
for 4 categories of commodities (2015) From time to time, the
General Administration of Customs (GAC) would announce short-term
measures to facilitate the growth of foreign trade and encourage
industrial development, for example,
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UNDERSTANDING CHINESE TAXATION on COSMETICS
6/17/2015www.reach24h.com15Value Added TaxImported goods into
China are subject to value-added tax (VAT)
Cosmetics: 17% Some commodities: 13%Composite Postal Tax
RateApplicable to cross-border e-commerce
Custom duty computed by reference to composite postal tax rate
Usually around 50% for cosmetics
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6/17/2015www.reach24h.com16
Duty Payable= DPV import tariff rate
Consumption Tax Payable= Composite assessable price consumption
tax rateComposite assessable price=(DPV+ import duty)/(1-
consumption tax rate)
VAT Payable= Composite assessable price VAT rateComposite
assessable price= DPV + Import duty + consumption taxUNDERSTANDING
CHINESE TAXATION on COSMETICS
6/17/2015www.reach24h.com17CASE STUDYAssume the DPV of a
skincare product is RMB 200
Import duty rate (Before June 1st) is 5% (Temporary duty
rate)
Import duty= RMB 200 5%= RMB 10
Consumption tax= ((RMB 200+RMB 10)/(1-30%)) 30%=RMB 90
VAT= (RMB 200+RMB 10+RMB 90) 17%=RMB 51
Therefore, the total amount of tax on an imported skincare
product is RMB 151
After the tariff adjustments, it is calculated to be RMB
140.5How much less?
ANTICIPATED OUTCOMES:6/17/2015www.reach24h.com18L'Oreal, Este
Lauder and Sephora are about to lower the retail prices for
imported products in China.
Reduce the price gap of imported goods between Chinese and
International Market
Competitive pressure-Chinese consumer goods manufacturers will
make improvements on their products and services
HURRAY!
DISCUSSION:6/17/2015www.reach24h.com19Tariff cuts narrows the
price gap Theoretically help narrow the price gap of foreign
products in China and in foreign market
VAT and consumption taxMarket supply and demandDistribution
channelsCirculation costHigh mark-up
Reduce the price gap between Chinese and International
Market
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6/17/2015www.reach24h.com20DISCUSSION:
Main source of taxationIn the U.S.- Personal Income taxIn
China-Turnover tax (VAT, consumption tax and business tax)
Taxation Structure
Singapore:7% importation consumption tax Japan:8% importation
sales tax In the U.S.:No import tariff at all; only 5%-7% sales
tax
DISCUSSION:6/17/2015www.reach24h.com21If price goes down:Goods
in need of large quantities: Increased domestic private consumption
on these goods
Mid-ranged products: To mainlanders who do not travel abroad
frequent
Mild impact: Those who travel abroad frequently
Other considerations: Consumers confidence
Wider selections in places such as HK, Singapore and the
U.S.Influence on Consumer Behaviors
DISCUSSION:6/17/2015www.reach24h.com22ScopeThe products
benefiting from the reductions account for < 10 % ofChinas total
imports.
Within cosmetics, not applicable to perfume and colour
cosmetics, nail polishes and etc.
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CONCLUSIONS:6/17/2015www.reach24h.com23
This policy will have a positive impact on Chinas merchandise
import levels, although it will be modest in the short term
Pilot project and Starting point
Multinational corporations and store retailers should:
Closely follow policy developments in China
Take advantage of opportunities and development trend to further
expand their business
Make timely adjustments to their production, sales and supply
chain management strategies, nationally and regionally
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