China To Tax More Luxury Goods

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

03 January 2005

China is considering widening its consumption tax to cover more luxury goods in response to rising wealth and spending on consumer items, it has emerged.

According to Xie Xuren, director of the State Administration of Taxation, consumption taxes will be broadened next year to include goods and leisure activities such as golf, designer fashion, and spending in nightclubs.

Under the present consumption tax system, first introduced in the 1970s and amended in the 1990s, 11 classes of goods, including cigarettes, wines, cosmetics, cars, jewellery and fireworks attract levies ranging from 3% to 45%.

However, according to reports in the regional media, it is felt within government circles that increasing wealth has changed consumption patterns to such an extent that the consumption tax system needs modification.

"The adjustment of consumption tax to cover those consumption activities is in line with rising living standards," Liu Heng, deputy director of the Central University of Finance and Economics' school of finance and public administration, noted in a South China Morning Post report.

Government think-tank, the Chinese Academy of Social Sciences has estimated that the middle classes, defined as families with assets valued between 150,000 yuan and 300,000 yuan (US$18,000 to US$36,250), make up 19% of China’s population of 1.3 billion.

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