China To Expand Luxury Taxes

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

16 November 2006

China's State Administration of Taxation plans to raise taxes on certain luxury goods and is considering implementing new taxes on others, according a government official.

Wang Li, a vice head of China's State Administration of Taxation, told the first annual forum on China's fiscal reform in Beijing on Tuesday that the policy of expanding the consumption tax net, particularly on luxury goods and services, was part of the government's overall strategy of reducing the income gap between the poor and the wealthy using the tax system.

"China will continue to improve its consumption tax system and further raise tax rates on some high-end luxury goods," he told the forum, although he did not specify the scope or timing of such a move.

In April 2006, the government increased consumption tax on several items, including yachts, golf balls and golf clubs (10%), and luxury watches (20%). Taxes on automobiles with an engine capacity above 2 litres have also increased.

China has become the third largest market for luxury goods after the United States and Japan, reflecting the country's growing affluence. However, studies have shown that a large percentage of the Chinese population support consumption tax increases on luxury goods as the income gap grows.

China collected 163.43 billion yuan (US$20.78 billion) in consumption tax revenues in 2005, and 142.85 million yuan in the first nine months of 2006.

Recommended