China postpones cross-border sales tax over fears of e-commerce slowdownCNBC.com
If implemented, the new rules would have meant tighter customs treatment and higher tax rates on overseas goods sold on Chinese e-commerce sites, which previously allowed shoppers to buy imported goods via cross-border e-commerce zones on a special parcel tax rate.
However, when China imposed the stricter tax system last month, social media was filled with pictures of heaps of abandoned foreign purchases at Shanghai Pudong Airport as travelers attempted to avoid the tax fines.
Shanghai customs later said that the posts were falsified rumors "spread by e-commerce companies and consumer-to-consumer (C2C) e-retailers" in order to pressure policymakers, China's official Global Times reported.
However, it looks like the pressure might have worked.
Last week, China's General Administration of Customs (GACC) announced a one-year postponement for some of the new tax policies in 10 e-commerce pilot zones, including Tianjin, Shanghai, Hangzhou, Ningbo, Zhengzhou, Guangzhou, Shenzhen, Chongqing, Fuzhou and Pingtan.
Concerns of an e-commerce slowdown
Under the previous new rule, Chinese regulators brought in a series of changes, such as demanding approvals for special foods, cosmetics and medical devices, significantly raising the regulatory bar for imports through e-commerce.
Fearing the new list would quickly drag down the growth of China's e-commerce industry, a GACC spokesperson said the one-year suspension could facilitate a smooth transition of the tax policy and enhance a healthy development of cross border e-commerce in China, according China's official Xinhua News Agency.
It looks as though those fears were justified. Data for the first week after the new rules took effect showed a more than 60 percent fall of cross-border e-commerce orders for pilot zones such as Shenzhen, Zhengzhou, Ningbo and Hangzhou. Particularly, as few as 3 percent of the goods in the Zhengzhou pilot zone were able to meet the new positive list, China's Central Television reported.
Meanwhile, tax rate and transaction limit changes still apply. Purchases exceeding 2,000 yuan ($307) for a single transaction in cross-border retail and 20,000 yuan ($3,075) for yearly transactions per person are now levied a full general trade tax.
So now, Chinese e-commerce businesses have been given a brief reprieve. But the question now is - what happens after one year?