China Imposes Tax on Contraceptives in bid to Boost Birthrate
A new 13% value-added tax (VAT) on condoms and other contraceptives is set to take effect in China on January 1,marking the first time in three decades these goods will be subject to such a levy. The move, buried within a broader VAT law passed in 2024, reflects a dramatic shift in policy as the nation attempts to reverse a declining birthrate and modernize its tax regime.
The new tax represents a critically important departure from 1993, when contraceptives were exempted from the nationwide VAT. Currently, VAT accounts for nearly 40% of China’s total tax revenue, making it a crucial component of the government’s fiscal strategy.
china’s demographic crisis stems from decades of the one-child policy, coupled with rising costs of living and changing societal norms. The government has recently implemented a range of incentives to encourage larger families, including subsidies for IVF treatment, and providing cash subsidies for additional children. Some local governments have even extended paid leave for newlyweds, hoping to incentivize marriage and family formation.
However, the decision to increase the cost of contraception has sparked widespread ridicule on Chinese social media.”What is wrong with modern society? They are truly going to extreme lengths just to make us have children,” one user wrote on the popular platform Weibo, encapsulating the sentiment of many.
The new VAT law also includes a tax break for childcare and “marriage introduction services,” signaling a multifaceted approach to influencing demographic trends. This year, the government allocated 90 billion yuan ($12.7 billion) to its first nationwide childcare subsidy program, offering an annual benefit of 3,600 yuan for each child under three years old. furthermore, plans were announced on Saturday to expand national healthcare insurance to cover all childbirth-related expenses.
Despite these significant investments, the impact on birthrates has been minimal. In 2024, the birthrate registered at 6.77 per 1,000 people – a slight increase from 2023, but still substantially below historical levels. Compounding the issue, a rising death rate linked to an aging population has resulted in China’s overall population shrinking for at least three consecutive years.
This lack of progress has fueled concerns that authorities are now resorting to more coercive measures – the “sticks” – to achieve their population goals. Reports have emerged of local government officials contacting women to inquire about their menstrual cycles and childbearing plans. In December, Chinese media reported that women in a county in yunnan province were required to report the date of their last period to local authorities, ostensibly to identify pregnant and expectant mothers.
Responding to the news, one social media user expressed fears of escalating government intervention, writing, “Today they require all women to report the time of their period, tomorrow it will be reporting the time of sexual intercourse, the day after tomorrow they’ll be calling to urge intercourse during the ovulation period … [this is] mass breeding.”
Experts suggest the tax on condoms is largely a symbolic gesture. A typical packet of condoms costs between 40-60 yuan ($5.70-$8.50), while a one-month supply of contraceptive pills ranges from 50-130 yuan. “Now that China’s birth policy has shifted to encouraging births and no longer promotes contraception, it is indeed reasonable to resume taxing contraceptives,” explained He Yafu, an independent demographer based in Guangdong province. “However,this measure is unlikely to have a significant effect on increasing the fertility rate.”
Yun Zhou, an assistant professor of sociology at the University of Michigan, echoed this sentiment, stating that the tax is unlikely to alter individual decision-making. However, she emphasized that it signals to the public “what desirable family behaviour should be.” Zhou also cautioned that restricting access to contraception could disproportionately harm women, particularly those from disadvantaged backgrounds.
The broader plan to modernize China’s tax system involves codifying regulations previously governed by administrative rules. While local governments are facing financial pressures and struggling to fully fund promised childcare subsidies, the revenue generated from the condom tax is expected to be minimal. Lee Ding, a manager at Dezan Shira & Associates, estimates the tax will yield an additional 5 billion yuan annually – a negligible amount compared to China’s total public budget revenue of 22 trillion yuan ($3.1 trillion). “We do not believe revenue generation is the primary motivation behind extending VAT to contraceptives,” Ding stated.
Ultimately, the effectiveness of these measures remains to be seen, but the shift in policy underscores the urgency with which China is addressing its looming demographic challenges.
