The Chinese government has reduced value added tax (VAT) for imported goods from 17% to 16% today, the tax reduction is expected to benefit wine importers but not much for wine consumers.
The VAT is calculated as percentage of the sum total of import tariff and excise duty. The reduction effective today is incremental to the total tax payable for importing wines, it will bring it from close to 48% to about 47%.
Import tariff of wine is at 14% currently and excise duty is at 10%. The VAT reduction will make it cheaper for importers to import wines, however, Chinese analysts said retail price is unlikely to drop materially after a 1 percent point cut in VAT.
Some even predicted retail prices of some wines to go up instead of down because of the global reduction of wine production. A recent report from the International Organisation for Vine and Wine (OIV) found that wine production in 2017 was 8.6% lower than in 2016, its lowest level in 60 years.
Production from EU countries has seen the biggest drop because of poor weather, in some cases the amount of wine being produced is down by a fifth, with wines like Spanish Rioja highly likely to surge in price.
Fortunately to Chinese consumers, thanks to the free trade agreements with countries like Australia, Chile, Georgia and New Zealand, the import tariffs on wines from these countries have already been reduced and will be eliminated altogerther. Retail prices of these wines are expected to be reduced.
Though today's VAT cut will not benefit wine consumers in a material way, it is generally welcomed by importers. Since most of them are not prepared to cut retail price as a response, thus allowing them to enjoy a bit wider profit margin.