China Introduces VAT on Contraceptives in a Bid to Boost Birthrate

China is embarking on a significant tax reform that includes the implementation of a value-added tax (VAT) on condoms and other contraceptives for the first time in 30 years. This measure aims to bolster the nation’s declining birthrate while simultaneously modernizing its tax regulations.

Details of the New Tax Law

Beginning January 1, condoms and contraceptives will incur a 13% VAT—an exemption that has been in place since the government introduced nationwide VAT in 1993. This change was tucked away in a VAT law enacted in 2024, which seeks to modernize China’s broader tax framework. Currently, VAT contributes nearly 40% to the country’s total tax revenue.

Contextualizing the Birthrate Challenge

In the aftermath of enforcing a strict one-child policy for over three decades, China has made several attempts in the past decade to encourage higher birthrates. These initiatives have included raising the permissible number of children per couple to three and providing various incentives such as discounts for IVF treatments and cash grants for families with additional children. Furthermore, local authorities have started offering newlyweds additional paid leave to promote marriage.

Public Reaction

However, the introduction of VAT on contraceptives has sparked ridicule on social media, with many questioning the logic behind the decision. One Weibo user lamented, “What is happening in modern society? They will go to extreme lengths just to make us have children.”

Additional Measures to Promote Family Growth

The new VAT law also comes with perks like tax exemptions for childcare services and marriage introduction agencies. In a substantial move this year, the government allocated 90 billion yuan (approximately $12.7 billion) for its first nationwide childcare subsidy program, which offers 3,600 yuan per child under the age of three. Additionally, there are plans to expand the national healthcare insurance to cover all childbirth-related expenses.

Little Impact on Birthrate

Despite these government initiatives, the effectiveness has been minimal. As of 2024, the birthrate stood at 6.77 per 1,000 people—a slight uptick from the previous year but still significantly below historical averages. An increasing death rate coupled with an aging population has led to a decline in China’s overall population for the past three years.

Increasing Concerns and Government Actions

As authorities struggle to achieve their objective of a higher birthrate, fears arise that they may resort to more invasive measures. Reports indicate that women in certain regions have received calls from government officials inquiring about their menstrual cycles and plans for childbearing. In December, there were even reports from Yunnan province where women were required to report the date of their last period, citing it as a necessity for tracking pregnant women.

One user commented humorously about the situation, saying, “Today they need reports on our period dates; tomorrow they’ll ask about our sexual activities, and soon they might encourage intercourse during ovulation—all in the name of mass breeding.”

Symbolic Taxation

The new VAT on contraceptives may be more symbolic than impactful. A typical packet of condoms costs between 40–60 yuan ($5.70–$8.50), while a month’s supply of contraceptive pills ranges from 50–130 yuan. He Yafu, an independent demographer, stated, “Now that China’s birth policy has shifted to encouraging births rather than promoting contraception, it makes sense to reinstate a tax on contraceptives. Still, this measure is unlikely to substantially affect the birth rate.”

Yun Zhou, a sociology assistant professor, noted that while the new tax might not directly influence decisions, it reflects the government’s stance on family values. If contraceptive access becomes tougher, “the negative impacts will primarily affect women, especially those from disadvantaged groups.”

Implications for China’s Tax System

China is also on a journey to overhaul its tax system, transitioning certain taxes to be codified in law rather than merely administered. While there is a pressing need for revenue among cash-strapped local governments, the new condom tax likely won’t yield significant financial returns. According to estimates from Lee Ding of a professional services firm, taxing contraceptives might generate about 5 billion yuan annually—merely a drop in the ocean compared to the national public budget revenue of 22 trillion yuan ($3.1 trillion). “We don’t believe that generating revenue is the main reason for extending VAT to contraceptives,” Ding concluded.