China reduces tax on cosmetics

30-Sep-2016

Premium cosmetics to be taxed at 15% while mass market products will be exempt

The Chinese Government has announced a reduction in the rate of tax placed on cosmetics for sale in the region.

Under the new guidelines, premium products will be taxed at a rate of 15% while tax on non-luxury cosmetic products will be waived entirely.

This is a significant reduction from the 30% tax previously applied to all cosmetics.

The change comes into place on 1 October 2016 and is expected to help stimulate domestic spending and reduce the stalling economy.

The higher previous rate was though to encourage Chinese consumers to spend abroad where products were cheaper.

However, import tax remains at 10% in the region and VAT is still set at 17%. This means that cosmetics in China will remain relatively expensive compared to international markets.

International brands could benefit “mildly” from the change, according to Jefferies Analyst Jessie Guo. She told Reuters: “Cosmetics brands could benefit mildly from the tax reduction with more competitive pricing.”

She also said that the updated tax rate was only likely to have a “moderate” impact on domestic demand.

Earlier this month Bloomberg reported that China’s Finance Ministry had submitted the proposed change to the State Council along with a suggested increase to taxes on alcohol and tobacco.

The reduction was suggested in order to bring taxes in line with a shift in purchasing patterns that has seen cosmetics become an every day expense rather than a luxury.

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The tax cut follows a reduction on import taxes in China last year. The Government slashed the rate in a bid to increase sales in the region.

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