Chinese retailers embrace new scheme enabling them to sell imported wines at half the usual tax rate
Chinese retailers are exploiting a scheme which enables them to sell imported wine at a much lower rate of tax.
Under current legislation, any producer wanting to muscle into the Chinese market must pay a hefty 48.2% tax to the government on every bottle they sell.Those countries such as Chile and New Zealand fortunate enough to share a free trade agreement with China are exempt, but for the rest of the world’s producers, the swingeing tax has to be paid.
However, a new scheme has been introduced which enables retailers to sell imported wine at only 21% tax, instead of the usual 48.2%. And it’s all perfectly legal, and done by way of a government sanctioned cross border scheme.
This scheme, called ‘Cross-Border E-Commerce’ was launched by the Chinese authorities in recognition of the popularity of imported goods amongst Chinese consummers. It is estimated that during 2016, Chinese consumers splashed out $130bn on foreign goods, a 38.5% increase on the previous year.
Under the new scheme, which came into effect last April, a list of goods which are eligible for the reduced tax has been drawn up, so all still wine in packacking of under two litres qualifies, ruling out wine in larger than magnum sized bottles, and all sparkling wines.
In a nutshell, the 21% tax is paid on the retail price of the wine, instead of the usual 48.2% on the cost, insurance and freight costs. While cross border e-commerce is not a recent practise, its use for wine is relatively new, with some of the most dedicated retailing plaforms in their infancy. Most focus on the Grand Cru Classé wines from Bordeaux, while more-specialised ones may work with some Burgundy and Australian wine.
For example, JD.hk offered a bottle of 2007 Château Coutet at $45.65 including tax – significantly less than the $58.00 that Wine-Searcher suggests as an average global price.
Inevitably there are a number of catches. The maximum that anyone can spend on cross-border goods is restricted to 2.000RMB for a single order, and an annual total of 20,000RMB for any individuals.
And imposing the tax on the retail price of the wine hampers the maximum margin retailers can make. According to a report in Meiningers, most retailers set a gross margin of between 5 –40%, depending on the wine.
Ningbo, Shenzhen and Tianjin are among the most popular ports which share the same tax free status, and each has several cross border e commerce agents. On arrival at the port, the goods are stored in a ‘cross-border warehouse’ which is closely monitored by the Chinese customs officials.
According to the rules, if the importer decides not to sell them directly to the consumer the goods can be transferred into a regular storage facility, and choose the traditional retail route to market. This would, however, incur the higher tax rate.
Many distributors choose air freight, though given the expense, (around 30RMB per bottle compared to as little as 2RMB per bottle shipped by sea), it is only worth shipping those wines above the $23.50 mark by air. As for the most expensive wines sold this way, even if a distributor worked at a zero gross margin, the most they could pay without the consumers going over his personal limit would be around $223.