Tax relief: International cosmetics brands set for boost as China mulls over change

The proposal was submitted to the Chinese People’s Political Consultative Conference (CPPCC) has recently (CPPCC ) -- a political advisory body.

According to local trade media, the proposal was submitted by one of its members, Jing Zhu, chairman of Haima Automobile.

According to Hedy He, an analyst with Chemlinked​, Jing believed that taking into regard the improved standard of living in China, cosmetics should be considered daily necessities and not subjected to the consumption tax.

Jing added that that abolishing the tax would further drive consumption upgrading 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%.

He noted that streamlining tax and fees reductions and tax categories have been a trend in tax reform in recent years.

Currently, China’s consumption tax applies to the non-essential items, including high-end cosmetics.

This category of cosmetics, which are defined as cosmetics with an after-tax wholesale price of over RMB10 per millilitre or RMB15 per piece, are subjected to 15% consumption tax.

He told CosmeticsDesign-Asia​ that several industry insiders believe there is a “great possibility​” this proposal will be adopted, and China will end the tax on cosmetics.

“The cut of consumption tax on cosmetics will not have much impact on national taxation, so cosmetics consumption tax may be given priority in the tax reform.”​

However, even if the proposal does go through, there is a chance it would not happen soon, especially in light of the novel coronavirus (COVID-19) outbreak, which has greatly impacted the beauty industry.

“The consumption tax on cosmetics may be abolished in the future but will not be implemented in the short term. The domestic brands have been greatly affected by COVID-19, the abolishment of consumption tax will only worsen them.” ​

This proposal would greatly 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 lower the price,”​ said He.

Bad news for local brands?

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.

“High-end products are rarely seen in domestic beauty products, so most of the domestic products do not need to pay the consumption tax. If foreign high-end brands choose to cut prices because of the abolishment of consumption tax, the market competitiveness of domestic brands will be further weakened,” ​said He.