China Raises Consumption Taxes On Luxury Goods

by Mary Swire, Tax-News.com, Hong Kong

23 March 2006

The Chinese government on Tuesday announced plans to introduce heavier consumption taxes on luxury goods and certain everyday items in an attempt to protect scarce resources, the environment and narrow the growing wealth gap between China's rich and poor.

Items that will attract higher consumption taxes from April 1 include yachts, golf balls and golf clubs (10%), and luxury watches (20%).

Automobiles with an engine capacity above 2 litres will also attract higher taxes. China is now one of the largest markets for new vehicle sales in the world, with car ownership having doubled between 2000 and 2004 from 6.25 million to 13.65 million, according to the China Council for the Promotion of International Trade. A further 5.76 units were shifted in 2005, the Council has stated.

However, mundane items such as chopsticks will also attract new taxes as China seeks to protect its timber resources. According to the Ministry of Finance, China produces some 15 billion chopsticks annually for both domestic use and for export which depletes China's forests by 1.3 million cubic metres of timber every year. Therefore, Beijing has decided to implement a 5% consumption tax on disposable chopsticks to discourage their use. Wooden floor panels will also attract a 5% tax to help preserve timber supplies.

China is also applying extra consumption levies on certain oil-based products, such as naphtha, solvents, lubricants (at 0.2 yuan per litre) and aviation fuel (at 0.1 yuan per litre), to encourage their more efficient use.

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