Apple’s commission (Apple Tax) is the highest in China – but why?

Apple, the tech giant known for its innovative products and services, has recently made headlines for allegedly collecting a staggering $40 billion in “Apple tax” from the Chinese market annually. This figure, reported by Kuai Technology, sparked a debate about the fairness of Apple’s tax practices and their impact on consumers. Apple CEO Tim Cook has repeatedly said that China is one of the most important markets for the company. Of course, China is the largest smartphone market in the world. Thus, every smartphone brand will compete hard to claim China. But why are Apple’s commissions in China higher despite the importance of the Apple market?

What is Apple Tax?

Apple’s tax is the “controversial” 30% commission the company charges for in-app purchases and subscriptions. This levy has sparked considerable debate in the app development community. This policy requires developers to pay a 30% fee on all in-app transactions made through iOS apps downloaded from the App Store. Although Apple defends this commission as necessary to cover the costs of maintaining the App Store infrastructure and supporting developers, critics argue that it places an unfair burden on their revenue streams. The commission applies specifically to purchases that enhance the app experience and are made within the app itself, excluding transactions made outside the app ecosystem.

Some companies try to get around the 30% fee by directing users to make in-app purchases, a practice that Apple actively discourages and penalizes. This led to conflicts between Apple and big players like Netflix and Spotify, which chose to avoid in-app purchases entirely to avoid the commission. Apple’s implementation of this policy has faced a backlash from developers, with notable cases such as Epic Games and Basecamp openly challenging the commission structure. The company’s tough stance on in-app purchases has also drawn regulatory scrutiny, with antitrust investigations launched in both the EU and the US to probe the fairness and competitiveness of Apple’s App Store practices.

In response to growing pressure, Apple introduced the Small Business Program in 2021, offering a reduced commission of 15% to developers who earn less than $1 million a year. This initiative aims to support smaller developers. However, the standard 30% commission remains in place for larger app creators and established companies.

Apple’s revenue and profit margins

According to Apple’s financial report for fiscal year 2023, the company’s total revenue reached $383.3 billion, with the services business accounting for $85.2 billion, or 22% of total revenue. Interestingly, the gross profit margin of products such as iPhone and iPad is 36.5%, while the gross profit margin of service revenue reaches 70.8%, almost twice that of hardware products.

Tax rates in different regions

The report suggests that the Chinese market is currently the only country among Apple’s top three revenue sources that does not have specific preferential rates for the “Apple tax”. In China, the tax rate for “standard enterprises” is set at 30%, while the tax rate for small enterprises is 15%. In comparison, adjusted tax rates in the United States are 27% and 12%, in the European Union are 17% and 10%, and in South Korea are 26% and 11%, all of which are lower than China’s charging standards .

The “Apple tax” controversy is a global issue, with antitrust investigations against Apple in various regions around the world forcing the company to soften its tax practices. In the EU and US markets, the ‘Apple tax’ debate has never stopped, with consumers and regulators questioning the fairness of Apple’s tax policies.

The high “Apple tax” in China has led to concerns about the affordability of Apple products to consumers. Some netizens even questioned why Apple users in China could not resist the high prices caused by the “Apple tax”. The report suggests that the tax burden ultimately falls on consumers, making products on Apple’s platform more expensive.

Why is Apple’s commission still 30% while other regions have 27% or less?

Like other markets where competition is low or moderate for Apple, competition in China is intense. Apple needs to make a profit and will do so with the resources it has. The company can afford to slightly lower Apple’s tax rates in the US, Europe and several other regions because it has a firm grip on those markets. Even if he loses money from the commission cut, he will sell more phones and still make money. We can’t say the same about the Chinese market. Apple’s smartphone shipments in China are even declining. This means that any reduction in commission will be a huge loss for the company.

Conclusion

Apple’s tax practices, particularly the controversial “Apple Tax,” have been the subject of intense scrutiny and debate worldwide. The company’s imposition of a 30% commission on in-app purchases and subscriptions has sparked conflicts with developers and regulators, leading to investigations into the fairness of Apple’s App Store policies. Despite the backlash, Apple defended this commission as necessary to maintain the App Store infrastructure. The introduction of the Small Business Program, which offers a reduced commission rate to smaller developers, reflects Apple’s attempt to address concerns about fairness.

In China, where tax rates are higher than in other regions, the impact of the “Apple tax” on consumers has raised concerns about affordability. China’s competitive environment adds complexity to Apple’s pricing strategies, making it a challenge for the company to cut commissions without jeopardizing profits. As Apple continues to address these challenges, the global focus on its tax practices underscores the importance of transparency and fairness in the operations of multinational corporations. Ongoing debates and investigations highlight the need for greater accountability and regulation in the technology industry to ensure a level playing field for all stakeholders.