China Reduces Cosmetic Consumption Tax to 15%

Takehome:

• From Oct 1 2016 the consumption tax for cosmetics will be reduced from 30% to 15%.
• The applicable scope is changed to “high-end cosmetics” including high-end make-up cosmetics, skin care cosmetics and cosmetic kits.
• High-end refers to products with a wholesale import price in excess of 10 RMB/ml(g) or 15 RMB/piece.

On Sep 30, China Ministry of Finance and State Administration of Taxation announced that from Oct 1 2016 the consumption tax for cosmetics will be reduced to 15% from 30%.

There is also a change to the applicable scope. Before consumption tax covered the following categories:

• Perfume
• Powder
• Lipstick
• Nail polish
• Blusher
• Eyebrow pencil
• Lip pencil
• Eye shadow
• Mascara
• Cosmetics kits, including makeup tools such as small mirror, comb

Other cosmetics were exempted from the consumption tax.

Now the applicable scope is changed to “high-end cosmetics” including high-end makeup cosmetics, skin care cosmetics and cosmetic kits. The tax formerly known as the cosmetics tax is now called the high-end cosmetics tax. China defines high end cosmetics as products with an after-tax wholesale price in excess of 10 RMB/ml(g) or 15 RMB/piece. The adjustment of the cosmetic consumption tax is a positive for make-up companies. However for skin care companies, adjusting pricing strategy and product portfolio will be necessary.