Chinese luxury tax
As anyone who has been able to compare the prices in China for luxury items to those in Hong Kong, the luxury tax in China has long been a source of revenues for the Chinese government.
The report of HSBC’ China Luxury Tax had said that in 2010, the country raised RMB1.2 trillion, US$187.9 billion in luxury taxes, which is a large amount that it constituted 78 percent of all the central government’s spending.
The term “luxury tax” is actually a composite of different taxes, being made up of import duties, VAT and consumption tax. A trend has been noticed that the Chinese consumers have trended towards buying such luxury products overseas. Chinese consumers spend four times as much overseas in luxury items than they do at home.
This would provide a much needed boost to domestic consumption, prompting an increase in imports, and easing pressure on the appreciation of the RMB. It would also increase overall consumption in China and improve tax revenues across the board while increasing employment in the retail and distribution supply chains.
All the officials at the Ministry of Finance observed that tax reductions would not translate to reduced prices for luxury goods, but would allow foreign manufacturers to increase profits.
Chris Devonshire-Ellis, the founding partner of Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Established in 1992, the firm has grown full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam and also Italy and the United States.