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Tax changes mean little to most prices

By Su Bei (China Daily)
Updated: 2006-03-23 06:20

The government's plan to make significant changes to the consumption tax from April 1 will have little impact on the country's overall tax revenue and consumer prices, economists said.

However, the most drastic changes for more than a decade will do much to improve the country's tax system by adjusting income distribution and guiding consumption and production, they added.

Ni Hongri, a senior researcher with the State Council Development Research Centre, said there was little chance that China's tax revenue would go up or down by much.

"It is an overall adjustment... taxes will be imposed or raised on some products but will be reduced or even eliminated on others," she said.

The Ministry of Finance said on Tuesday that the government would raise levies on vehicles with engines larger than 2 litres.

The government will also impose new charges on a wide range of oil products such as aviation fuel, naptha, solvents and lubricating oil. There will be new taxes on items such as disposable chopsticks, wooden floor panels, golf balls and equipment, expensive watches and yachts.

The existing consumption tax on skincare products and shampoo will be scrapped.

"The tax adjustments will not have a big impact on people's buying behaviour and consumer prices as a whole," said Ni.

China's consumption tax policy has not changed since it was introduced in 1994. Since then, the economy has progressed very quickly.

Now, China needs a better consumption tax which is more in line with current market conditions, said Peng Longyun, a senior economist with the Asian Development Bank's Resident Mission in China. "The new tax system will help the government to achieve this goal," he said.

(China Daily 03/23/2006 page10)