A wine merchant in Shenzhen bordering Hong Kong has been handed a two-year sentence and a fine of RMB 3 million (US$419,670) for profiteering from tariff-free cross-border wines imported through e-commerce platforms, and illegally selling them for higher profits.
Cross-border wines sold through e-commerce platforms are exempted from duties and enjoy reduced VAT and excise taxes of 30% off, according to a directive issued by the country’s Ministry of Finance in December last year, in a bid to encourage global trade amid the country’s slowing economy and on-going trade war.
Wine is among the expanded list of products benefiting from the policy. This means wines including sparkling and still are only subject to a total of 17.9% taxes, much less than the regular 48% taxes for bottles imported through normal channels.
The catch is the products imported through cross-border e-commerce channel can only be sold to end consumers, not trade clients.
According to Chinese media report, the merchant surnamed Zhang used his importing company to funnel in 306,751 bottles of wines under this scheme and sold them to wine distributors instead of consumers to profit from higher margins.
Police said Zhang’s company imported 24 different wine brands including the popular Penfolds, Castel and Accolade Wines between 2016 and 2017, and is believed to have dodged taxes worth over RMB 1.82 million (US$254,600).
It’s reported that 12 people have been arrested, and Zhang eventually turned himself in. The confiscated wines are turned in to the state treasury.
China loosened its cap on cross-border e-commerce purchases earlier this year to boost consumption. Starting from January 1, consumers in China are allowed to spend up to RMB 26,000 (US$3,773) on goods imported through the channel, up from RMB 20,000.
Single transaction limit is also increased to RMB 5,000, up from RMB 2,000 that covers wine, beer, baby formula, olive oil, cosmetics and among others.
China’s biggest e-commerce company, Alibaba, last year announced its plan to bring in US$200 billion worth of imports into the country by 2023.
Cross-border e-commece is a growing sector for the country’s overall retail sales market. According to customs data, the total value of cross-border e-commerce transactions totalled RMB 56.59 billion (US$8.21 billion) last year.