Cross-border e-commerce has expanded in China largely due to measures adopted by the government in recent years to encourage consumers to shop online. However, changes in tax policy pertaining to online shopping were introduced in April that have both benefits and drawbacks, and close attention must be paid to the government’s measures in predicting whether the market will continue to grow.
This is the finding of the Tsinghua-Nikkei Institute of Media Studies, a joint research effort between Japan’s Nikkei group and Tsinghua University in China.
As part of the government’s support for cross-border online shopping, the General Administration of Customs issued two notices in 2014 recognizing the legal status of online shopping service providers, paving the way for a rapid expansion.
In another market-supporting push, the government is promoting an “Internet Plus” program to fuel the growth of various industries and districts through the active use of the internet. China revealed the action plan for the first time in a government work report in March 2015. In July of the same year, the State Council released guiding opinions on promoting Internet Plus, saying China will seek to gain the world’s No. 1 position in e-commerce under the “Internet Plus Circulation” action plan.
In particular, China is promoting e-commerce in rural villages and in each business sector, as well as cross-border online shopping. While expanding and deepening e-commerce, China is accelerating the integration of the business model with manufacturing, logistics, consumption and other sectors.
The State Council, furthermore, successively introduced measures to promote e-commerce in cooperation with the State Administration of Foreign Exchange and other entities in 2015, including an increase in payment limits, fine-tuning of the tax collection range and tariff reductions. The council also announced guiding opinions on how to improve the efficiency of customs clearance and risk management. In addition, it proposed the adoption of overseas warehouse models matching the size of online shopping service companies.
For Hangzhou, Zhejiang Province, where online commerce is widespread, the council issued guidelines to promote the development of cross-border e-commerce, stating a decision to provide support and subsidies for online shopping platforms and companies. At the same time, cross-border e-commerce pilot zones were established in 2015 in Hangzhou, Shanghai, Chongqing, Ningbo and five other cities.
In a related development, the Ministry of Commerce drew up guidelines for cross-border e-commerce services, calling for the management of goods for online shopping and trading data in accordance with them.
The series of measures taken by the Chinese government indicates its intention to raise the level of domestic industry based on market economy mechanisms.
Recent changes in taxation will also greatly affect cross-border e-commerce. When goods arrive in mainland China from abroad, they are subjected to a 15% tariff and a 13% value-added tax. But because a lower tax is levied on goods bought online, purchases through overseas e-commerce networks have cost shoppers less.
The government abolished the tax break for online buyers in April and began to apply the tariff and value-added tax to goods bought through cross-border portals. At the same time, it introduced a limit of 2,000 yuan ($295) on each cross-border online purchase and 20,000 yuan on annual transactions.
But the government introduced a temporary measure to exempt online buyers from the tariff as long as transactions are within the limits. The value-added tax is also exempted or reduced. If transactions exceed the limits, shoppers are required to pay the tariff and tax in full.
Online purchases of low-priced goods have become costlier than before, as the abolition of the lower-rate tax has eliminated exemptions for them. But taxes are often lowered, in effect, for purchases of high-priced goods such as high-end cosmetics and home appliances.
Assessments of the taxation system revision vary. Online shopping for inexpensive overseas goods has become less advantageous, dealing a serious blow to individuals and small businesses making purchases on behalf of clients. But some analysts point out that an increase in consumers using major cross-border online shopping sites will help the industry grow in the long run. According to them, a sharp increase in the use of major portals, as a result of a decline in the large presence of proxy purchase service providers, will contribute to healthy growth for the industry.
China’s cross-border e-commerce market has a variety of problems. One of them is weak delivery guarantees; a considerable number of shoppers have failed to receive goods on time. Delivery is also time-consuming and requires high fees on the part of shoppers.
While goods are often priced lower overseas than in China, a large number of shoppers feel discontent with delivery services. Post-sale services have yet to be fully developed, and buyers often suffer when problems are not handled properly.
According to a 2015 survey by the China Internet Network Information Center, 67.7% of cross-border shopping site users were unhappy about extremely long delivery times. Other complaints focused on the quality of goods bought through proxy service providers (21.5%), and the absence of legitimate ways to return or exchange purchased goods (16.9%).
Cross-border e-commerce companies are required to procure goods, set prices, deliver goods, and offer delivery and customs clearance services on demand from shoppers. Efforts to prepare extensive lineups of high-quality and popular goods, realize on-time delivery and simplify formalities are indispensable for the market’s further growth in China.