Reduction of Cosmetic Consumption Tax: Good News for CBEC

Background:

This April China implemented a new tax system for CBEC commodities, which replaced 50 % of personal postal article tax with a new rate related to consumption tax, value-added tax and tariff shown as below:

*Purchasing value*	*Rate*
Per order value ≤ 2000 RMB (after tax)	70% (17% of value-added tax + 30% of consumption tax)*
Annual purchasing value ≤ 20,000 RMB (after tax)	70% (17% of value-added tax + 30% of consumption tax)*
Per order value > 2000 RMB (after tax)	2%-10% of Tariff + 17% of value-added tax + 30% of consumption tax
Annual purchasing value > 20,000 RMB (after tax)

Since Oct 1 China cosmetic consumption tax has been reduced to 15% from 30% and is only applicable for “high-end cosmetics” including high-end makeup cosmetics, skin care cosmetics and cosmetic kits (see CL News on Sep 30). With the reduction of the consumption tax, CBEC sees a reduction of tax rate as well.

Purchasing value

Personal postal article tax

Previous Rate

Present Rate

Per order value ≤ 2000 RMB (after tax);

Annual purchasing value ≤ 20,000 RMB (after tax)

50%

(the personal postal article tax is lower than 50 RMB, the tax is waived)

32.9%

22.4% (for high-end cosmetics*)

11.9% (for normal cosmetics)

Per order value > 2000 RMB (after tax)
Annual purchasing value > 20,000 RMB (after tax)

50%

(the personal postal article tax is lower than 50 RMB, the tax is waived)

2%-10% of Tariff+ 47%

2%-10% of Tariff + 32% (for high-end cosmetics)

2%-10% of Tariff + 17% (for normal cosmetics)

Note: high-end cosmetics refer to products with an after-tax wholesale price in excess of 10 RMB/ml(g) or 15 RMB/piece.

Implications

This April CBEC was subject to three new strict policies: tax change, positive list and mandatory registration with competent authority. As a result, some companies are now reassessing their China market plans and many have already withdrawn from the market, some are busy readjusting their product portfolios to comply with the new CBEC policies. Consequently, the CBEC import growth in the first half of 2016 was slowing, only 512.5 billion RMB, up 7.4% from the previous year.

The reduction of consumption tax is expected to provide a new stimulus for companies wary of entering the China CBEC market. Although it won’t play a huge role, it still is a positive for the CBEC industry and is likely to accelerate the growth of CBEC.

Now the biggest obstacle for CBEC companies is the mandatory registration with CFDA. There is around 7 months left until the implementation of registration requirement. Generally 6-8 months is required for filing of imported non-special use cosmetics while 10-12 months for registration of imported special use cosmetics. In addition, requirements for application dossiers are complicated and companies must prepare Chinses labels for their products.