China cuts cosmetics consumption tax

By Natasha Spencer

- Last updated on GMT

China removes consumption tax on cosmetics

Related tags: Retailing

China has reduced or removed consumption tax on all cosmetic products in a bid to help improve slowed economic growth.

As of the 1st October, the country’s new policy saw the consumption tax, which was 30% for all cosmetics, removed entirely from non-premium cosmetic products, the finance ministry announced on Friday 30th September.  The tax rate for high-end products retailing at a more expensive price point will be reduced to 15%.  

The move, which came into effect on the 1st October, comes as China aims to encourage consumer spending within the domestic market following a period of slowing economic growth.

China’s strive towards making cosmetics products more affordable to domestic consumers comes as many domestic buyers have typically shopped for luxury products abroad in neighbouring countries such as South Korea to avoid China’s high tax rates.  

In March this year, China announced it would be changing the rules for imported goods that are sold online by removing a tax known as the parcel tax. From April 6th 2016, The Ministry of China would, instead, replace this tax with the value-added and consumption duties that existed on most Chinese goods, but with a 30% discount.

China’s retail sales

In September, the Ministry of Commerce from the Department of Market Operation and Consumption Promotion announced that the retail sales of consumer goods in August reached RMB 2.75 tn ($412 bn), going up 10.6% year on year and 0.4 percentage points above July’s figures.

In the period between January-August, social consumer goods’ retail sales equalled RMB 21.05 tn ($3 tn), which were up 10.3% year on year.

The Ministry of Commerce monitored the actual growth rate of the retail sales of 5,000 enterprises and found their sales 0.3 percentage points up from those in July.

China’s online retail sales showed both sustained and accelerated growth, with online retail sales of enterprises up 25.3% year on year, higher than brick-and-mortar stores (23.6%), supermarkets  (18.9%) and shopping malls (17.8%).  

Consumer prices also increased in August, with the Consumer Price Index (CPI) reporting a 1.3% year on year increase, which amounts to a 0.1 percentage point spike from July.

Political power

As China steers towards a similar regulatory framework to the one governing the cosmetics market in Europe, these changes are likely to have a considerable impact on future changes that benefit the economic and social trends in China.

With the country seeing sluggish economic results, it focuses on simplifying the cosmetic and beauty industry to make way for a smoother and more efficient accreditation process. The overall aim is to encourage domestic and international brands to bring their product lines to China.

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