China to Slash Cosmetics Sales Tax

China’s Ministry of Finance (MOF) is considering a revision of China’s cosmetic tax classification. Under the proposed revision cosmetics will be divided into general cosmetics and luxury cosmetics. The reform is expected to be implemented in the second half of 2014.

At present China imposes a 30% consumption tax on all kinds of cosmetics, which makes Chinese market retail prices relatively high. This 30% tax is in addition to existing tariffs imposed on foreign manufacturers. The reform will offer exemptions to general cosmetics while high-pollution products and luxury products will be subject to new taxes.

The reform essentially means that high turnover cosmetic products such as lipsticks should see a significant decrease in cost price. However, the overall influence of this reform will depend on what constitutes a general cosmetic or a luxury cosmetic. We can speculate with a high degree of certainty that make-ups and perfumes will be classified as general cosmetics which will provide a much needed stimulus for China’s cosmetic industry.