Tax on luxury 'should be raised': MOF

Shanghai Daily, July 2, 2011

Tax on imported luxury goods should not be canceled or reduced, an official with China's Ministry of Finance said, adding that it should be raised.

The comments by Liu Shangxi, a senior researcher with the ministry, came just days after Yao Jian, a spokesman for the Ministry of Commerce, said key ministries were about to submit a proposal to the State Council asking for the import duty on luxury goods to be cut.

But in an article on the finance ministry's website, Liu cited the need to maintain social equality and protect domestic companies.

"The taxes are imposed on the rich people, and should rather be raised than reduced," Liu said. "Besides, stronger reliance on imported goods may damp competitiveness of domestic companies."

The article also cited Mao Jie, of the University of International Business and Economics, and Li Bengui, a researcher with China's top tax bureau, as proposing that the country should spend more effort in building strong domestic brands than in reducing import duty.

However, on four occasions over the past three months, officials with the Ministry of Commerce, including Minister Chen Demin and Vice Minister Jiang Zengwei, have expressed a willingness to reduce taxes on high-quality imported goods.

Most recently, on June 24, an article on the Ministry of Commerce website said import duties for goods including luxury products should be reduced to lower prices and boost consumption.

"China's tax on luxury goods is the highest in the world, and Chinese people's spending in overseas markets is more than four times that in domestic ones," the article said.

In China, consumption tax, value-added tax and duty on perfume amounts to 57 percent of its original price and the taxes on fine wines can amount to as much as 92 percent.

A survey conducted by the Ministry of Commerce showed that prices for watches, handbags, clothing, wine and electronic products sold on the Chinese mainland were, on average, 45 percent higher than in Hong Kong, 51 percent higher than in the United States and 72 percent higher than in France.

"We think reducing taxes on luxury goods is a trend but the timing is difficult to estimate," Li Qingxing, secretary-general of the newly founded China Luxury Industry Association, told Shanghai Daily.

"Reducing taxes for imported goods benefits consumers and will help us expand domestic consumption, but government bodies always struggle when it comes to measures that may affect income from taxes," Li said.

Data from the Ministry of Finance shows that consumption tax, value-added tax and duties on imported goods totaled 1.25 trillion yuan last year, 29.5 percent of central government revenue.

China is the world's second largest market for luxury products after Japan.