The tax authority recently published 44 positive and negative list items governing invoicing, further strengthening tax compliance. Read together with the new reporting rules discussed previously and the standards for advertising commissions, the deduction cap for advertising and promotional expenses is 15% of annual operating revenue for ordinary companies, and 30% for industries such as cosmetics.
Tax compliance will affect virtually every company operating across the internet economy: platform companies (Amazon, TikTok, AliExpress, Temu, SHEIN, eBay, Walmart, Shopee, Lazada, Taobao/Tmall, JD, Pinduoduo, Douyin, WeChat, Kuaishou, Xiaohongshu, Meituan, Didi, Trip.com and others); supply-chain companies (raw-material suppliers, resource companies, manufacturers and brand owners); sales companies (distributors and resellers); and service providers and practitioners (operators and advertisers).
The implications for participants in China’s consumer goods industry are summarized below:
| Participant | Impact | Conclusion |
|---|---|---|
| Platform companies | Must fulfill tax-information reporting obligations, requiring system upgrades, process optimization and compliance management. | Operating costs will increase. Low-price platforms will be more affected. |
| Third-party and self-operated shelf e-commerce | Tax and related policies reduce merchant profits. Some merchants will exit, reducing competition and spending on livestreaming and advertising. Limits on commission and advertising ratios will reduce advertising expenditure. Platforms’ own advertising costs are also subject to tax-deduction caps. | Platform revenue and profit will decline. Market share will become more concentrated. |
| Livestreaming and content platforms | Tax and related policies reduce merchant profits. Some merchants will exit, reducing competition and spending on livestreaming and advertising. Limits on commission and advertising ratios will reduce advertising expenditure. Platforms’ own advertising costs are also subject to tax-deduction caps. | Platform revenue and profit will decline. Market share will become more concentrated. Platforms may shift further toward shelf-based e-commerce. |
| Private-domain platforms | Tax authorities have transaction data, making previously unreported transactions unlawful. Platforms must obtain invoices from suppliers, affecting profit. Personal-account payments, income splitting, inflated costs and tax-haven arrangements are no longer viable. Platforms’ own advertising costs are also subject to tax-deduction caps. | Platform revenue and profit will decline. Some platforms may exit. |
| Supply-chain companies | Compliance costs surge: the “four flows” must align, with contracts, invoices, funds and logistics documents reconciled transaction by transaction. Operating costs surge: basic information such as premises, employee social insurance and utilities must match invoicing scale. | Low-margin businesses will be cut. Some companies will exit. Upstream compliance costs will pass downstream and ultimately to consumers. |
| Raw-material and manufacturing companies | Big data will be used to check whether production capacity matches invoicing scale; under- or false invoicing will face severe penalties. Product names and specifications on invoices must exactly match actual business activity and tax codes. | Revenue and profit will decline. Overall capacity will fall, while CPI and PPI will rise. Low-margin businesses will be cut. |
| Logistics companies | Orders, dispatch, vehicle tracking, settlement and invoicing must be fully digitized with accurate data. Extensive use of personal accounts for unreported receipts is non-compliant. Missing input invoices or low input-VAT rates sharply increase tax costs. | Revenue and profit will decline. Low-margin businesses will be cut. |
| Sales companies | Look-through profit regulation and stricter social-insurance enforcement will curb tax evasion, increase costs and materially affect profit. Advertising and commission caps will influence marketing choices. | Operating costs will increase. Advertising investment may decline. More companies will build in-house digital marketing and focus on long-term returns. |
| Brand owners and distributors | Affected by deduction caps for commissions and advertising. The rules expressly prohibit issuing reciprocal or circular invoices without a reasonable commercial purpose, and “empty circulation” through fictitious transactions, used to inflate sales and advertising commission income. Higher upstream supply-chain costs will pass through to this layer. | Low-price Chinese brands will be hit harder, which may benefit international brands overall. In-house livestreaming and content teams can avoid advertising and commission limits while adapting to the AI era. Brands and distributors enter an elimination phase. |
| Resellers and sub-distributors | Compliance will materially affect profit. | Shift toward higher-margin products for which invoices can be provided. Some companies will exit. |
| Service companies and practitioners | Advertisers’ livestreaming slot fees and creator collaboration fees are capped at 15% of revenue. Livestreaming and product-seeding commissions paid by advertisers are capped at 5% of revenue. Heavily affected by upstream clients and advertisers: revenue falls while expenses rise. The efficiency advantage of specialists may decline, while in-house teams may offer clients better marginal returns. | Some business models, such as TP operations, may be marginalized. The livestreaming and advertising market will shrink. The industry will undergo a large-scale shakeout. |
| MCNs and advertising agencies | Affected by advertisers’ commission and advertising deduction caps. Lower advertiser profits reduce spending on livestreaming and advertising. Their own media-buying costs are also subject to advertising caps. | Must provide more technical services such as data analysis so advertising fees can be reclassified as technical service fees. Weaker delivery metrics ultimately reduce revenue. Revenue and advertising rates will fall substantially. Operating costs will rise. |
| Celebrity creators | Personal-account receipts, income splitting, inflated costs and tax-haven arrangements are no longer viable. Their own advertising costs are also subject to tax-deduction caps. | Revenue and advertising rates will fall substantially. Operating costs will rise. Some participants will exit. |
| TP / operations agencies | Lower advertiser profits reduce spending on livestreaming and advertising. Their own media-buying costs are also subject to advertising caps, and delivery metrics may weaken. | Reduced client support may create a ratchet effect. Weaker delivery metrics ultimately reduce revenue. |
GANDE · Insights