How should cross-border sellers respond to the new tax reform in Southeast Asia?
In recent years, cross-border e-commerce has surged, and Chinese e-commerce platforms represented by TikTok Shop have expanded rapidly in the Southeast Asian market. However, with the increasing import of small goods, Southeast Asian countries including Malaysia, Thailand and Vietnam have increased low-price goods taxes. What is the impact of this new tax policy on China's cross-border e-commerce platforms? What can cross-border sellers do to cope?
Many countries have introduced new tax policies
According to reports, on June 17, Vietnam's Minister of Finance, Ho Duc Phuc, submitted a proposal to the National Assembly to amend the Value-added Tax Law, which suggested that the government consider adopting a 10% value-added tax rate for cross-border e-commerce small parcels. It is understood that the Vietnamese Ministry of Finance plans to increase the value of goods exempt from import duties from the current 1 million VND (about 287 yuan) to 2 million VND (about 573 yuan) or less, and change the current exemption from import duties and value-added tax to mandatory VAT.
According to data from the Vietnam Post and Telecommunications Corporation (VNPT), in March 2023, an average of 4 million to 5 million orders were shipped from China to Vietnam every day, with the value generally between 100,000 and 300,000 VND (about 28 to 84 yuan). Le Quang Manh, chairman of Vietnam's Finance and Budget Committee, said in the National Assembly that considering the prosperity of e-commerce platforms such as Shopee and TikTok Shop, the government should remove the preferential VAT exemption policy for small imports in order to add more revenue sources for the current budget tight fiscal situation.
In fact, at the beginning of this year, the Malaysian Customs Bureau has taken the lead in implementing a new tax policy, and goods less than 500 ringgit (about 770 yuan) imported into Malaysia will be taxed at a low price of 10%. Fahmi Fadzil, Malaysia's communications and digital minister, said the tax reform was largely aimed at protecting the interests of local companies. "It's about making local products more competitive in the market," he said.
In June, the Thai Cabinet reviewed and approved a 7 percent value-added tax on goods sold by cross-border e-commerce sellers priced below 1,500 baht (about 303 yuan). Official statistics show that in the first eight months of the 2024 fiscal year, a total of 89 million items worth up to 1,500 baht were imported from abroad, with a total value of 26 billion baht. Total imports for the full year are expected to exceed 30 billion baht. According to this calculation, the tax could generate 2 billion baht for the Treasury.
China's cross-border ecommerce sellers suffer setbacks
The reasons why many countries tighten the low-price tax exemption policy are actually pointing to two points: first, to increase national tax revenue; The second is to improve the market competitiveness of local products. Thailand's finance ministry has said the move is not targeted in any hostile way because Thai companies and merchants are required to pay value-added tax on goods sold, and levying VAT on imported goods would better level the playing field. Thailand China network reported that the new VAT regulations will have a no small impact on cross-border e-commerce sellers such as China.
According to Theeraj Athanavanich, director General of the Thai Customs Department, the department will allow the platform to declare the price of imported products and calculate the value-added tax from that price, and then pay the tax to the customs department. The Thai Customs Service has also set up a tax system for individuals who buy goods from abroad and send them through the post. Customs will send a tax notice to the recipient's address explaining the tax obligation. The recipient must then pay the tax to the General Customs Office before collecting the goods from the post office.
Although the tax policy is open to all foreign sellers, the impact on Chinese sellers is particularly significant. After the introduction of low-price goods tax in Malaysia, a large number of overseas goods quickly saw their prices rise on e-commerce platforms such as Lazada and Shopee. An online survey shows that nearly 50 percent of Chinese sellers believe that the emergence of low-price commodity taxes has had a greater impact on sales. From the perspective of consumers, the increase in taxes has greatly weakened the low price advantage of sellers, and consumers' willingness to buy cross-border goods may be generally reduced.
Opportunities and challenges coexist
At present, there are three main forms of Chinese cross-border goods entering the Southeast Asian market: direct mail, transit and overseas warehouse. Usually, small and medium-sized merchants mostly use the direct mail model, while larger platforms and enterprises will carry out cross-border logistics through the overseas warehouse model. It is understood that the adjustment of tax policy has a greater impact on direct mail e-commerce, and also promotes the transformation of cross-border e-commerce from the small package direct mail model to the overseas warehouse stock model.
The Chinese government has also taken positive measures to support cross-border e-commerce. Recently, China's Ministry of Commerce, the National Development and Reform Commission, the Ministry of Finance and other nine departments jointly issued the "Opinions on expanding cross-border e-commerce exports to Promote the construction of overseas warehouses", in strengthening the construction of relevant infrastructure and logistics system mentioned that the existing capital channels should be made good use of to support the development of cross-border e-commerce offshore warehouse enterprises.
Overseas warehouse includes self-built overseas warehouse, cross-border e-commerce platform overseas warehouse, third party overseas warehouse three ways. At present, some of the larger merchants are building their own overseas warehouses. According to reports, on the one hand, self-built overseas warehouses can meet the compliance requirements of exporting countries; On the other hand, after the change of tax policy, the weakening of price competitive advantage can be compensated by the improvement of local service capacity, and the subsequent large-scale stock shortage can be avoided. In addition, major cross-border e-commerce platforms have launched semi-custody business and adjusted investment policies, which also put forward higher requirements for the overseas warehousing and local logistics service capabilities of settled merchants.
The industry believes that the shift from low-price attraction strategy to quality attraction strategy to improve the quality of goods, which is a good opportunity for many domestic emerging brands. Looking at the world, the change of tax policy is already the mainstream trend of cross-border e-commerce, perhaps only by looking for opportunities in the change, it is more likely to highlight the encircling.