26 March 2019
Parallel traders who buy items tax-free such as baby formula, diapers and cosmetics and resell them in the mainland at a profit are causing unrest with local residents who blame them for rising prices of basic necessities. Photo: HKEJ
Parallel traders who buy items tax-free such as baby formula, diapers and cosmetics and resell them in the mainland at a profit are causing unrest with local residents who blame them for rising prices of basic necessities. Photo: HKEJ

Will low-tax shops stop smugglers from flooding to Hong Kong?

When Guangzhou’s first low-tax shop opened on Friday in a downtown district, it attracted 5,000 people, many of whom queued for three hours. By lunchtime all the stocks of diapers and milk powder had been sold.

The flood of shoppers was so great that on Monday night the store announced it would no longer sell physical goods but only take orders to be delivered by mail.

“After four days of trial operation, we have discovered that the number of people is too many and we cannot control the service,” it said in a statement.

“Customers can place orders after seeing the goods on display.”

It sells exactly those imported products which mainlanders flock to Hong Kong to buy — healthcare goods, pharmaceuticals, milk powder and other daily necessities — at prices similar or even lower.

Could a chain of these shops be the way to reduce the flood of unwelcome visitors to Hong Kong?

The Guangzhou Meijoy Best E-Commerce has 500 square meters of space on the fourth floor of the upmarket GT Land Plaza shopping mall in Zhujiang New City.

It sells 200 kinds of goods. The government describes it as a B2B2C (business-to-business-to-consumer) operation. The model began in August 2014 with such a shop in Chongqing, followed by one in Shanghai.

The aim was that consumers not only buy the goods on display at the shop but order them on the internet. The prices are very attractive.

A 700-gram tin of an American can of milk powder costs 198 yuan compared with 205 on Taobao or 268 at a normal shop, which includes duty of 40 per cent.

A Prada B2811L handbag costs 8,799 yuan compared with 11,000 on Taobao or 18,499 at a normal shop, which includes tax of 100 per cent. They only carry a stamp duty of 10 per cent.

Wang Li, a resident of Nansha, bought milk powder for his son. “Previously, I relied on stocks brought from Hong Kong by a friend. The powder in this store is 60-70 yuan cheaper than that bought from Hong Kong.”

An additional attraction is that the goods come directly from a bonded area in Guangzhou where they are stored after being imported. This gives an assurance to customers that the items are genuine and not fake.

News of the shop spread rapidly around Guangzhou, stimulating enormous interest.

At the same time, rumours are circulating that cheap prices at the shop were due to proper tax payments not being made and that its popularity had forced the authorities to close it.

To fight these rumours, the Huangpu customs department on Sunday issued a statement that the operator of the new store had registered with the customs and received all the necessary approvals and that it was not going to close.

Second, the store was not “a tax-free shop” nor a “bonded shop”, it said. It was part of a national experiment of a new kind of outlet, which began in August in Chongqing, followed by another in the Shanghai Free Trade Zone.

Li Jinling, general manager of Guangzhou Zuozhi Supply Chain Group, said the spread of this new type of commerce would offer consumers the benefits of buying items on which they only pay stamp duty.

“If the customs determine that the buying is for individual and not corporate consumption, then it is only subject to stamp duty and not other forms of tax. For a can of imported milk powder for example, all the duties on a traditional sale amount to 43 per cent, but the stamp duty is only 10 per cent,” she said.

The spread of e-commerce in China has been dramatic. According to estimates by the Ministry of Commerce, such sales last year, including B2B and retail sales, reached 13 trillion yuan, an increase of 25 per cent over 2013, equivalent to nearly 20 per cent of China’s gross domestic product.

But fraud in e-commerce is widespread. According to figures from the National Industrial and Commercial Administration, authorities last year received 77,800 complaints about sales made over the internet, a record and 3.6 times more than in 2013. The amount of money involved was 31.65 million yuan.

The model that has just been unveiled in Guangzhou has enormous potential. If many such shops were set up in the city and elsewhere in Guangdong province, it would greatly reduce the flood of traders who go to Hong Kong and bring trouble and inconvenience to its residents.

The issue for the authorities to decide now is how to address the opposition of thousands of traditional retailers who pay the full level of taxes and would lose heavily if such outlets opened and also to make up for the tax revenue the government would lose.

Everyone in Guangzhou is waiting to see their decision.

– Contact us at [email protected]


Hong Kong-based writer, teacher and speaker

EJI Weekly Newsletter

Please click here to unsubscribe