China’s State Administration of Taxation has announced it will lower the VAT rate on imported goods including wine from 17% to 16% from 1 May.

This cut in VAT is part of China’s CNY400bn ($63.58bn) tax reduction package and is expected to boost wine imports because it will reduce the total tax on imported wine from 48.2% to 47.0%.

Countries that have signed free trade agreements (FTAs) with China, such as Australia, Chile, Georgia and New Zealand, will benefit even more because they are not subject to the 14% import tax on wines.

“Cutting down tax is of course a good thing. If VAT is down by 1%, this means overall tax is down by 1.27%. If you take into consideration sales profit, this helps to reduce costs. It helps wine companies to reduce costs,” wine merchant Yu Hongjie told China’s Wine Business Observer.

Australia began negotiating its FTA with China in 2005 but it was not officially signed until 2015. The agreement covers ten areas of goods, services and investment and it means 100% of Australian products are exempt from Chinese imports tariffs.

In 2017, Australia was the second-largest importer of wine into China in terms of both value and volume. The total value of Australian wine imports into China was $682.4m, representing a 25.77% increase on 2016, and the total volume was 105.7 million litres, representing a 33.2% rise on the 2016 figure.

The China-Chile FTA was signed in 2005 and it was the first signed between China and a Latin American country. The agreement expanded the percentage of traded goods exempt from import tariffs to 97% over ten years. It has been updated twice, first in 2010 and then in 2017.

In 2017, China surpassed the US to become Chile’s largest wine export market. Chile is China’s third largest importer of wine. The total value of Chilean wine imported into China was US$266.97, a 27.5% increase on the previous year, and the total volume imported was 74.3 million litres, a 23.6% increase on the year before.

Georgia’s FTA with China was completed in October 2016 but only came into force in January 2018. It is the first FTA between China and the Eurasia region. Imports of Georgian wine grew by 45% in both volume and value from a low level in 2017.

New Zealand signed its FTA with China in 2018, making it the first one signed between china and a developed country. It was upgraded in 2017. New Zealand is the seventh-largest importer of wine to China by value. The country imported wine worth US$29.2m in 2017, 39.89% higher than in 2016.