People in China will pay a 13% sales tax on contraceptives starting January 1, as the country implements changes to its tax system in an effort to boost birth rates. The overhaul, announced late last year, removes exemptions that had been in place since 1994 and also exempts marriage-related services and elderly care from value added tax (VAT).
The move comes as China grapples with a declining population and a slowing economy. Official figures indicate that China's population has shrunk for three consecutive years, with only 9.54 million babies born in 2024, approximately half the number recorded a decade prior, when the country began easing its one-child policy. The new tax policy is part of a broader effort that includes extending parental leave and issuing cash handouts to encourage young people to marry and have children.
The 13% VAT will apply to contraceptives, including condoms, birth control pills, and other devices. While the government aims to incentivize births, the tax on contraceptives has raised concerns about its potential impact on reproductive health and family planning. The exemption of childcare services from VAT is intended to offset the cost of raising children, making it more financially appealing for couples to have larger families.
China's birth rate has been declining for several years, despite the relaxation of the one-child policy. The high cost of living, particularly in urban areas, coupled with demanding work schedules, has deterred many couples from having more children. The government hopes that the combination of tax incentives, extended parental leave, and cash handouts will reverse this trend.
The impact of the new tax policy on the contraceptive market remains to be seen. Companies that manufacture and distribute contraceptives in China may experience a decrease in sales due to the increased cost for consumers. However, the government's broader efforts to support families could potentially stimulate demand for childcare services and other related industries. The long-term effects on China's birth rate and demographic trends will be closely monitored in the coming years.
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