China tax rules to cool grey market for Danone, a2 baby formula

Singapore

FOREIGN infant formula makers such as Danone may see a small but rapidly growing channel to the Chinese consumer close off as the government tightens a tax loophole that allowed lower prices on goods sold through websites operating outside of China.

Products sold on websites and shipped overseas to Chinese consumers face an effective tax increase of 11.9 per cent starting this month as the government overhauls an e-commerce system that inadvertently gave some foreign companies, including Australia's a2 Milk Co and Bellamy's Australia Ltd, a pricing edge over similar imported products available in China's domestic market.

Chinese authorities are cracking down on a grey market spawned by a cottage industry of websites and apps that made ubiquitous such practices as daigou, where Chinese living abroad order baby formula, diapers and vitamins online on behalf of mainland consumers looking to avoid taxes. The regulation may pose a challenge for some foreign companies including Danone, whose Nutrilo…