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China CBEC Comprehensive Tax Further Reduced with VAT Reform

On Mar. 5, China's Premier Li Keqiang said in his government work report to this year’s NPC session that “a massive tax-cut program is listed on the agenda of the government. Under the plan, the value-added tax (VAT) rate will drop to 13% from 16% in sectors such as manufacturing and will be slashed from the current rate of 10% to 9% for transportation and construction industries.”


China’s Ongoing VAT Reform

In China, VAT refers to a turnover tax levied on the value of products or services added at each step of a supply chain. As one of the principal taxes, it covers all sectors of the national economy and accounts for the majority of the total tax revenue [1].

The VAT regime is extremely complex and has been streamlined several times to relieve enterprises’ tax burden:

  • In 2017, China’s State Council changed the VAT rate from the previous four brackets (17%, 13%, 11% and 6%) to three bracket s (17%, 11% and 6%) [2].

  • In May 2018, the original 17% VAT bracket and 11% VAT bracket were adjusted to 16% and 10%, respectively [3].

Currently, there are three applicable VAT brackets:

Taxation ScopeVAT Rate
Sales or import of goods (other than the below listed goods)16%
♦ Sales of real estate and transport, postal, telecom and construction services;
♦ Sales or import of goods such as:
  • Agricultural products, edible vegetable oils;

  • Tap water, heating, air conditioning, hot water, coal gas, LPG, natural gas, methane gas, coal products for household use;

  • Books, newspapers, magazines, audio-visual products, electronic publications;

  • Feeds, fertilizers, pesticides, agricultural machinery and covering plastic film for farming;

  • Other goods as stipulated by the State Council.

Sales of intangible assets and financial, modern, life services6%

In addition, China will continue to reform its VAT system in 2019 with an emphasis on reducing the tax burden of manufacturing industry and SMEs, as stated above.

VAT and CBEC Comprehensive Tax

 VAT is a key component of CBEC comprehensive tax. According to the CBEC tax scheme, commodities imported through the channel are subject to a comprehensive tax which is a combination of three taxes—tariffs, VAT and consumption tax. The transaction limit of CBEC commodities is 5000 RMB per transaction and 26,000 RMB per person per year.

1. Within the transaction limits, CBEC imported products are eligible for preferential tax policy in which the import tariff rate is temporarily fixed at 0.0%, and the import VAT and consumption tax are levied at 70% of the statutory tax payable. The calculation rules are:

CBEC Comprehensive Tax Rate = [(VAT rate + Consumption tax rate) ÷ (1 - Consumption tax rate)] × 70%

 2. On the contrary, the products imported via CBEC will be taxed in full in line with the general trade mode in any of the following cases:

Tax Payable = Tariff + VAT + Consumption tax
  • A single transaction is over 5,000 RMB but within the annual limit of 26,000 RMB, it is allowed to be imported via CBEC but is subject to full tax.

  • Any excess beyond the annual limit will be regulated as general trade.

 A Boon for CBEC Industry

Compared with general trade, tax incentives to CBEC traders has been a major driving force for the prosperity witnessed in the sector. The massive cuts of VAT rate (from 16% to 13%) will directly contribute to the significant reduction on CBEC tax, which will accordingly allow CBEC stakeholders to enjoy lower cost while maintaining the import advantages.

For CBEC imported cosmetics, the updated tax rates are as follows:

CategoryItemsVAT (%)Updated VAT (%)Consumption tax (%)CBEC comprehensive rate (%)Updated CBEC comprehensive rate (%)
Cosmetics, skin care productsMask16130/1511.2/25.539.1/23.05
Eye Gel16130/1511.2/25.539.1/23.05
Nail Polish16130/1511.2/25.539.1/23.05
Skin Care16130/1511.2/25.539.1/23.05
Cleaning care productsShampoo1613011.29.1
Body Wash1613011.29.1
  • The consumption tax of ordinary cosmetic is 0.0%.

  • The 15% consumption tax is only levied on high-end cosmetics which refer to products with an after-tax wholesale import price in excess of 10 RMB/ml (g) or 15 RMB/piece and includes high-end make-up cosmetics, skin care cosmetics and cosmetic kits.

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