China Implements VAT Changes and Social Policies Amid Declining Birth Rates
From January 1, contraceptives in China will be subject to a new 13% sales tax, while childcare services, marriage-related services, and elderly care remain VAT-exempt. This VAT overhaul removes exemptions dating back to 1994 and is part of a broader package that includes extending parental leave and cash handouts.
China is facing an ageing population highlighted by three consecutive years of declining birth rates; in 2024, births fell to 9.54 million, roughly half the level seen a decade earlier. This policy shift is part of Beijing’s efforts to boost birth rates by encouraging more marriages and children amid the challenges posed by an ageing population and a sluggish economy.
Analysts are divided on the new condom tax, with some viewing it as symbolic and unlikely to effectively raise fertility rates, while others see it as indicative of broader tax-collection priorities in a weak economic environment. VAT revenue, which amounts to nearly $1 trillion or about 40% of total tax revenue, underlines the complex political considerations behind extending or modifying VAT treatment.
The success of these policies may hinge on indebted provincial governments, raising questions about the availability of resources and the effectiveness of subsidies and other measures. There are concerns that some policies could be intrusive and counterproductive; for example, reports have surfaced of officials asking women about their menstrual cycles to identify expectant mothers, drawing criticism.
Additionally, rising costs associated with raising children are a significant factor in the country’s low fertility rates. A 2024 YuWa Population Research Institute study cited increasing school fees and childcare burdens as major influences on fertility decisions and social trends regarding marriage and dating.
