China’s Finance Ministry announced that they would be raising the tax currently imposed on foreign goods that e-commerce companies ship into China to help their economy with consumption instead of relying on investment and industry. The new tax is said to be implemented on April 8, 2016 and will cover not only commercially imported goods but personally imported goods as well. This means that goods sent to individual customers in China from overseas will also be subject to import taxes, tariffs, and consumption tax. For example, tariffs on watches ordered from abroad are to be increased to 60% from 30% and on jewelry to 15% from 10%. With the new tax law, the Chinese government is hoping to encourage its citizens to purchase domestically instead of purchasing overseas.
According to Fortune.com, although Chinese shoppers account for a third of global sales of luxury goods, only a fifth of those sales where made in mainland China while the rest of the purchases were made abroad either though e-commerce or by Chinese tourists who smuggle products into China to sell. Luxury consumption in China fell 2% in 2015, even though purchases by Chinese consumers rose 251% in Japan, 31% in Europe and 33% in South Korea.
Many Chinese consumers prefer to purchase products abroad as they are sure to be genuine compared to the products at home. Products such as maternity and baby products (ex. baby formula and diapers) are bought overseas for safety issues and Chinese consumers have shown that they are willing to pay more for products such as cosmetics, infant formula and other baby products.
The question remains if these new taxes will really affect overseas purchases. With an inefficient distribution methods, Chinese consumers often times notice that prices domestically are significantly more expensive that purchasing from e-commerce sites overseas.