China's New CBEC Policy Triggers Product Price Rise

After the new CBEC tax took effect on 8 Apr, the tax for food & beverages as well as health foods increased by 11.9%. The tax primarily affects food orders less than 500 RMB in value. Previously, the tax rate for food was 10% but consumers

Take home

China’s new CBEC tax policy has led to a price increase in a number of product categories but has not had a negative impact on consumer demand or purchasing through CBEC online platforms.

After the new CBEC tax took effect on 8 Apr, the tax for food & beverages as well as health foods increased by 11.9% (see CL Food News on 22 Mar 2016). The tax primarily affects food orders less than 500 RMB in value. Previously, the tax rate for food was 10% but consumers could enjoy exemptions if the tax was no more than 50 RMB. This exemption policy is now cancelled meaning for the same order shoppers should pay about 60 RMB more. For an order with a value over 500, the tax rate almost remains unchanged, growing by just 1.9%.

Tax comparison of food under old and new tax policy

The value of a food order	Before	now	Increase
<=500	0 (tax under 50 RMB can be exempt)	11.9%	11.9% (~60 RMB)
>500	10%	11.9%	1.9%

Though more tax is levied, the price increase has been widely accepted by CBEC shoppers. Some product categories are also subject to reduced tax. Taking cosmetics and personal care products for example, the tax rates for these commodities under 100 RMB become 32.9% and 11.9% respectively and for those above 100 RMB were reduced 17.1% and 38.1%, respectively.

As infant formula products are one of the hottest products, several CBEC operators have their own favorable policies. Mia.com, one of the famous infant & mom CBEC platforms in China announces that they will pay the tax for consumers of infant formula products. Another CBEC website with a large consumer base, Kaola.com, states that they still have a large stock of infant formula in the bonded warehouses which will be sold for the same price as before the new tax policy was enacted.

According to China MOFCOM statistics, the import & export revenue of CBEC will reach 6500 billion RMB and CBEC’s share of China’s foreign trade will increase by 20%. The new tax policy may have some negative effect on consumers at the very beginning but CBEC will still continue to expand in the long term.