China cuts consumption tax on cosmetics to stir growth

File photo of customers purchasing beauty care products at a cosmetics store in Hong Kong January 21, 2011. REUTERS/Tyrone Siu

BEIJING/SHANGHAI (Reuters) - China will reduce or remove consumption tax on all cosmetic products, the finance ministry said on Friday, as the country looks to stimulate domestic spending to help prop up slowing economic growth.

The new policy will see consumption tax - previously set at 30 percent for all cosmetics - waived entirely for non-luxury cosmetic products, while the tax rate on more expensive cosmetics will be cut to 15 percent, the finance ministry said in a statement.

The move, which comes into effect from Oct. 1, fits with China’s drive to make products more affordable to domestic shoppers, many of whom have traditionally looked to buy more expensive products overseas because of high tax rates at home.

The cuts could be of some help to imported cosmetics brands, analysts said, but are unlikely to have a major or immediate impact because other steep tariffs mean prices domestically will remain high compared to markets overseas.

“Cosmetic brands could benefit mildly from the tax reduction with more competitive pricing,” said Jefferies analyst Jessie Guo in a note on Friday. She added, though, that it would only “moderately” boost domestic demand.

Last year, the ministry slashed import taxes on products from skin care to shoes in a bid to “push forward structural reform” as the country looks to shift its economy to consumption from flagging manufacturing and exports.

The head of the world’s largest advertising firm, Martin Sorrell, told Reuters on Thursday the business environment in China was the toughest he had seen in around three decades, especially hitting international brands.

Reporting by Beijing Monitoring Desk and Adam Jourdan in SHANGHAI; Editing by Jacqueline Wong