By Yanchen Zhou
On 24 May 2016 , subject to State Council’s approval, China’s General Administration of Customs (GAC) announced the new administration rules (Shubanfa  No.29) in the transitional period for cross-border e-commerce retail import.
Suppliers of goods to Chinese consumers had been worried about how the new regulations could impact their bottom line since the new policies were implemented in April 2016. Generally speaking, the new e-commerce tax policies would apply higher tax rates and tighter customs treatments on clearance and governance.
What will happen during the transitional period?
In the one-year transitional period (by 11 May 2017), the following Customs clearance and governance relief are offered in 10 e-commerce pilot cities including Shanghai, Hangzhou, Ningbo, Zhengzhou, Guangzhou, Shenzhen, Chongqing, Tianjin, Fuzhou and Pingtan:
• Under B2B2C model (i.e. the inventory are stored in bonded areas in China, and the goods are shipped from bonded areas to consumers) , suspend the import license requirements and registration requirements for certain products (those in the Positive List) imported for the first time such as cosmetics, infant formula, medical equipment, health products.
• Under B2C model (i.e. the inventory are kept outside China, and the goods are shipped from overseas to consumers), suspend the review of Inbound Goods Notice (this is for quarantine purpose when goods entering bonded areas/facilities), and import license requirements for certain products (those in the Positive Lists , 1142 products in List 1 and 151 products in List 2) imported for the first time such as cosmetics, infant formula, medical equipment, health products.
It means that the retail import of certain products under e-commerce are relived from the same governance and license requirements as those under general trade model and domestic manufacturers. This would certainly help overseas goods get through clearance faster. Obviously the policy maker has noted the new e-commerce tax policies immediately caused a slow-down of goods reaching consumers.
Nevertheless, the new tax rates stipulated in the new e-commerce tax policies would still apply, without relief or exception.
China still welcomes retail imports, but will take a closer monitoring
Some says China was forced to give transitional period as it fears the slow-down of cross-border e-commerce while the author thinks the opposite.
Chinese consumers like buying overseas products. Buying luxury products may be a show-off of middle-class life style, but buying basic products such as diary, diapers, household appliance, kitchen wares etc. may be an indication of consumers’ trust issues over food safety and quality control of domestic products. Until the domestic supply catches up the overseas products in quality and reputation, the demand of buying from overseas would stay at high level.
To make the tax collection from retail import more efficiently, the transitional period, in fact, will act as a bumper for overseas suppliers and e-commerce sites to get ready for the new customs treatments on clearance and governance. Eventually, overseas suppliers and e-commerce sites will need to be more discipline to follow the customs formalities, and have a system in place to monitor the updates of the Positive List.
Even if the demand for overseas products drop, or manufactures invest to supply same products from domestic markets, Chinese policy makers would be even happier to see boost in domestic supplies. In any event, Chinese government has nothing to lose in imposing tighter monitoring over the e-commerce retail import.
This is a guest post by Yanchen Zhou
Yanchen Joined Thomson Reuters in April 2016. Before joining Thomson Reuters, Yanchen worked as an Indirect Tax Manager at Deloitte China. In her five and half year tax advisory career, Yanchen mainly focused on VAT and assisted many multinational companies in business model planning, VAT export refund consulting, indirect tax health check, indirect tax compliance work, design and implement of indirect tax automation solutions, VAT reform project consulting and solution design. In addition to indirect tax, she also has experience with trade and Customs regulation in China and Asia Pacific. Yanchen has a Master’s degree in Economics and is a China Certified Public Accountant.