China may start taxing more luxury goods

China has become an increasingly important market for global luxury brands. [Photo / For China Daily]

China may start levying taxes on an increasing number of luxury goods as part of the country's efforts to push forward economic reform, an official with China's top planning agency said on Friday.

More products might be taxed, as part of the country's tax reform plans for this year, said Kong Jingyuan, director-general of the department of comprehensive reform of the economic system at the National Development and Reform Commission.

Kong made the remarks when answering questions about a guideline with the key tasks to deepen economic reforms in 2013, which was published on the central government's website on Friday.

In the guideline, the NDRC pledged to "properly modify the rate and scope of consumption taxes". According to Kong, the changes will be carried out both in terms of rates and structures.

Taking into consideration the increasing national income levels, some products that used to be regarded as luxury goods are now seen as daily necessities and thus will not be taxed as luxury products, he said.

In addition, he said, some goods that have become more common in recent years, such as luxury cars and yachts, will be subject to luxury taxes.

Heavier consumption taxes will also be levied on "heavy-polluting and excessive-energy consuming products", according to the guideline.

An earlier report by China National Radio said that a 20 percent extra tax will be levied on cars priced at more than 1.7 million yuan ($277,440). The report cited an unnamed source with the China Association of Automobile Manufacturers.

China's luxury-goods market is likely to grow by a world-leading 20 percent this year, accounting for more than a quarter of global luxury sales, according to a recent report by Deutsche Bank AG. The bank's economists believe that, despite several months of sluggishness in various economic indicators in China, the second-half outlook remains positive.

That's partly due to weak inflation and the foreseeable likelihood of China's central bank keeping interest rates low to spur consumer spending.

"It's hard not to be optimistic about the future of luxury goods in China," said John Zhang, a marketing professor at the University of Pennsylvania's Wharton School.

"Chinese people have always tried hard to enjoy better things in life even in bad times, and there's still a good deal of pent-up demand," he said.

"In addition, the Chinese economy is still growing at a very fast pace, relative to every other economy in the world, despite its recent slight slowdown."

Zhang believes that while the high level of income inequality in China is bad for other sectors, it tends to equate to fast growth in sales of luxury products.

The Deutsche Bank report says sales could be affected by Chinese government policies on consumer spending and travel.

Last year, authorities introduced bans on officials' use of public money to buy luxury items.

According to Zhang, sales could hit a speed bump, but the effects would likely be short lived. In the long term, nothing short of prohibitions will stop deep-pocketed Chinese consumers from snapping up the finer things in life.

"For instance, anti-corruption policies have slowed down conspicuous spending on banquets in fancy hotels. However, consumption in private clubs and in less conspicuous restaurants picked up," the professor said. "I think that both consumers and luxury-goods manufacturers will quickly find ways to adapt to the new environment."

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