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Tax cut in sight for luxury products

(Global Times)

11:02, September 14, 2011

China is likely to lower the tax rate on luxury commodities to boost domestic consumption by the end of this year, China Youth Daily reported Tuesday.

"Various parties have reached a consensus on this issue," Chen Jiagui, a member of the Standing Committee of the National People's Congress and researcher with the Chinese Academy of Social Sciences, said to the paper.

Currently, almost two-thirds of global luxury brands can be purchased in China. By the end of March, the total consumption in the country reached $10.7 billion, accounting for a quarter of the global market share and ranking second in the world in terms of luxury commodity consumption after Japan, according to a report by the World Luxury Association (WLA) in July.

"Luxury products companies are compelled to raise the price of products in China due to the high taxes levied. Therefore, more Chinese choose to buy these products overseas," Ouyang Kun, the chief representative of the association, told the Global Times.

Statistics from the Ministry of Commerce show the price of 20 high-end commodities including watches, bags, clothes, wine and electronic products in the Chinese mainland are 45 percent higher than in Hong Kong, 51 percent higher than the US and 72 percent higher than France.

The total tax rate on the imported luxury commodities is about 60 percent.

Chinese overseas consumption of luxury products reached nearly $50 billion by last year, four times the domestic equivalent, WLA's report said.

Yao Jian, spokesman of the Ministry of Commerce, has said on several occasions that China should lower the tax on luxury products to increase domestic consumption.

In the long run, decreasing the tax will bring more luxury commodities into China and could prevent Chinese currency from going to other countries, Ouyang said.

However, not everyone agrees with the idea of a tax cut.

An article on the Ministry of Finance website in June noted that encouraging Chinese to buy imported luxury products will do little to help boost domestic consumption, and would ultimately only help other countries' economies.

Liu Huan, head of the School of Taxation at the Central University of Finance and Economics, said that lowering the tax would affect the growth of domestic luxury brands.

Mei Xinyu, a researcher with the Chinese Academy of Internal Trade and Economic Cooperation affiliated to the Ministry of Commerce, is another expert who opposes lowering the tax.

"It will just benefit a small group of people, but will worsen domestic industries, reduce tariff duties and lead to more discontent over imbalanced income distribution," Mei said.

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