The Abolishment of Consumption Tax on Cosmetics in China Could Provide a Major Boost to International Brands

A proposal to end taxation on cosmetics was recently submitted to the Chinese People’s Political Consultative Conference (CPPCC), a political advisory body, by one of its members, Jing Zhu, chairman of Haima Automobile.

Jing believes that taking into regard the improved standard of living in China, cosmetics should be considered daily necessities and not subjected to consumption tax. He also added that abolishing the tax would further drive the upgrade of consumption in the country.

The last time China reformed the rate of consumption tax was in 2016 when it reduced the consumption tax on cosmetics from 30% to 15%. Streamlining tax and fee reductions and tax categories have been a trend within tax reform in recent years.

Currently, China’s consumption tax applies to non-essential items, including high-end cosmetics. This category of cosmetics, which includes those with an after-tax wholesale price of over CNY 10 per milliliter or CNY 15 per piece, are subjected to 15% consumption tax.

The cut of consumption tax on cosmetics will not have much of an impact on national taxation, therefore such tax may be given priority in the upcoming reform.

However, even if the proposal does go through, there is a chance it would not happen so soon, especially in the light of the COVID-19 outbreak, which has greatly impacted the beauty industry. Domestic brands have been greatly affected by COVID-19, and the abolishment of the consumption tax would only make the situation even more serious.

This proposal would clearly benefit foreign cosmetic brands and further boost their development in the country’s lucrative beauty market.

If the consumption tax is abolished, the profits of production, sales and manufacturing consignment will be greatly improved. Some foreign-funded high-end cosmetics may then decide to lower their prices.

On the other hand, the tax abolishment would deal a huge blow to China’s blossoming domestic cosmetics industry, which consists of up-and-coming brands such as Pechoin, Catkin and Marie Dalgar.

Domestic beauty products are rarely high-end, therefore most would not be greatly impacted by the consumption tax. If foreign high-end brands choose to cut prices because of the abolishment of the consumption tax, the market competitiveness of domestic brands will be further weakened.

It is however relevant to point out that high-end imported cosmetics are most likely not purchased by the same buyers of local low-end products, so even with a price cut, it probably won’t be so significant to push the purchasers of local low-end brands towards imported high-end cosmetics.