The love of Australian products in China is growing, but the taxes collected are at rock bottom

There is a growing business trend in China pushed forward by the booming middle class – to purchase cheap and quality Australian goods. The reason behind this is the lack of trust in several varieties of goods produced in China, even from top global manufacturers, including: i) cosmetics; ii) baby products and iii) pharmaceuticals.

The lack of control over items produced in China is a serious concern for the modern, health-aware middle class Chinese which can easily distinguish the difference in quality between goods produced in the Mainland and others coming from Hong Kong and Australia.

And just like that, the “daigou” appeared on the market, purchasing goods from Australia and reselling them in China, resulting in profits reaching up to US$100,000. There are more than 40,000 of these types of resellers operating and buying on behalf of their Chinese Clients in Australia, making it really difficult for the Australian tax authorities to tax them, due to undeclared overseas profits.

"The fact the fund flows might be going through a foreign bank account and never come into Australia doesn't alleviate the requirement to declare the income as taxable," said Peter Janetzki, a partner in Ernst & Young's international tax services team.

Healy Consultants Group PLC conclude that the number of daigou is surely going to increase proportionally to the growth of the wealthier Chinese middle class, further straining the Australian Tax Office efforts to find a way to tax this booming trade.