China continues to open its market by reducing import tax rate for luxury cosmetics

In a statement published by the State Council Tariff Commission, the Chinese government announced decided to adjust the tax rate for import goods and taxes.

The announcement was accompanied by a single-page document listing goods that will be affected by the adjustments. Besides premium cosmetics, other luxury goods affected by the taxes include watches, wine, jewellery and golfing equipment.

Open for business

According to Chemlinked, a web portal by REACH24H Consulting Group which provides cosmetic regulatory information, luxury cosmetics were taxed at 60% before.

This signals that China hopes to continue opening the market, commented Roger Ying of Chemlinked​.

“The recent years’ government policy is to continuous open up the markets and meet the demands of the Chinese consumers, so they have lowered many importing tariff for the consumer products which includes general cosmetics. And now, high end cosmetics also join the tariff reduction,”​ he explains.

Ying points out that import tariffs on cosmetics were first reduced in June 2015 and cut thrice more consecutively from 2016 to 2018.

The most recently cut in cosmetics tax was announced in June this year with import tax on cosmetics such as skin care and hair styling products lowered from 8.4% to 2.9% on average.

The US caveat

Even though the this tax reduction applies to high-end cosmetics of US origin as well, they will still be subject to suffering additional tariffs brought about by the US-China trade war, said Ying.

He added that its likely to be increased again next year if Washington decides to slap more import tariffs on Chinese products.

High-end crackdown

Last week, Chinese social media was caught in a frenzy as some Chinese travellers reported having to pay levies on luxury goods they have purchased overseas.

The current law in China states that an individual can only carry 5,000yuan ($722) worth of products for duty free allowance.

Bloomberg reported that a tax receipt issued by customs at Shanghai Pudong Airport was circulating on WeChat showing that a traveller was slapped with over $2000 in import taxes on Tom Ford lipsticks, SK-II skincare products and other goods from La Mer and Sulwhasoo.

While it may seem contradictory with China’s agenda in cutting import taxes, the border crackdown is meant to stop Chinese travellers from selling luxury goods acquired overseas at a profit, also known as “daigou”.

By enforcing stricter control and more frequent checks, Ying shared that the government is working to put an end to the “daigou” practice, deterring the illegal import of goods and directing money back into the local economy.

For the love of luxury

The demand for the finer things in life is growing in China. In their 2017 report, Nielsen found sales of premium tier products, which it defines as “goods that cost at least 20% more than the average price for the category”, were growing at a rapid pace.

The report showed that Luxury is clearly a status symbol as 54% shared that they buy premium products to inform others of their own good tastes. Similarly, 56% said that high-end products made them feel successful.

“With increasing affluence, consumers are craving products that offer an enhanced, premium experience,”​ said Vishal Bali, managing director of Nielsen China. ​“[Consumers] want products that express their individual taste while also projecting a positive image of success and status.​