China slashes luxury taxes to spur growth
China may be the world’s second-largest luxury items market, but it has plans to become even bigger. In order to increase domestic sales, the nation will soon lower or eliminate taxes on high-end imports such as cosmetics, watches and liquor, reported Channel News Asia.
China’s current luxury taxes are fairly exorbitant – as high as 60 percent, including 50 percent for cosmetics and 30 percent for high-end watches – which has long caused wealthy consumers to flee to Hong Kong, London and Paris to find the goods they want without the towering tariffs, the 21st Century Business Herald said. According to a November study published by consulting business Bain & Company, 56 percent of China’s luxury purchasing during 2010 was done abroad.
Steep import duties have greatly affected the price of merchandise sold in China versus overseas. A study by China's commerce ministry discovered that prices of 20 luxury labels of watches, suitcases, clothes, liquor and consumer electronics are 45 percent higher in China than in Hong Kong, 51 percent higher than in the U.S. and even 72 percent higher than in France.
Come Oct. 1, a new system of taxation may be established – just in time for the country’s National Day, a holiday typically marked by incredible shopping.
Under the new regime, taxes for watches, clothes, shoes, suitcases, cosmetics, perfumes, milk powder and more will be dramatically reduced or possibly removed entirely, anonymous sources said to the newspaper.
China’s interest in high-end purchases has skyrocketed along with the country’s fantastic economic growth. PriceWaterhouseCoopers predicts the Asian nation will become the world’s major buyer of luxury goods by 2015.
Commerce ministry spokesman Yao Jian declared that tax slashing is a "general trend" which encourages greater consumption of mid- and high-end consumer goods and maintained that there is consensus on the new system of tariffs across China’s government departments. Policymakers aim to lessen China’s reliance on exports in order to increase investment and foster further growth in its economy, currently the world’s second largest.