Jun. 7 – Luxury tax in China has long been a source of significant revenues for the Chinese government, as anyone who has been able to compare the prices in China for luxury items to those in Hong Kong, for example, will be well aware.
Yet the amount of money generated by China’s taxing such items is staggering. According to HSBC’s China Luxury Tax Report, the country raised RMB1.2 trillion – US$187.9 billion – in luxury taxes in 2010, an amount so large 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. These rates vary from product to product, but for products such as high-end cosmetics these rates equate to a respective 30 percent, 17 percent and 10 percent. This is very high when compared to other countries.
A result has been that Chinese consumers have trended towards buying such products overseas – some 80 percent of what could be termed luxury items are now purchased abroad. Or, to put it another way, Chinese consumers spend four times as much overseas in luxury items than they do at home. This has led to calls for a reduction in luxury taxes as it has the effect of pushing buyers out of China.
Doing so would provide several benefits, not least the return of Chinese consumers purchasing in China. This would provide a much needed boost to domestic consumption, prompting an increase in imports, and easing pressure on the appreciation of the RMB. This, in turn, would increase overall consumption in China and improve tax revenues across the board while increasing employment in the retail and distribution supply chains. These arguments constitute the current position of the Ministry of Commerce.
However, officials at the Ministry of Finance take the view that tax reductions would not translate to reduced prices for luxury goods, but would instead merely allow foreign manufacturers to increase profits. They also suggest that should retail prices be lowered while import duties are not, domestic retailers and distributors would be hurt as profits margins shrink, unless a rise in sales offsets the price decline. Quite why China’s Ministry of Finance is concerned about foreign manufacturers making more money is not fully understood.
The debate concerning the reduction of luxury tax is unlikely to be rectified soon, and especially as this current year sees a handover of government in China. Politically, a reduction could be seen as a move to favor the wealthy, at a time when the income disparity in China has attracted considerable attention. Whether this is sufficient to continue to buffer against the need for increased consumerism is a moot point.
In the meantime, China’s domestic consumption loss is apparent as increasing numbers of Chinese nationals have friends source and purchase luxury items from Hong Kong, Singapore, Europe and the United States – none of which is of any good to China’s exchequer whatsoever.
Chris Devonshire-Ellis is the founding partner of Dezan Shira & Associates. 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. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.
For further details regarding tax in China, please email china@dezshira.com, visit www.dezshira.com, or download the firm’s brochure.
You can also stay up to date with the latest business and investment trends across emerging Asia by subscribing to the Asia Briefing weekly newsletter.
Related Reading
The China Tax Guide (Fifth Edition) This popular book, fully updated with all recent tax changes and amendments, details all taxes in China affecting businesses and individuals, how to calculate the amounts due, tax registration and filing procedures, tax minimization techniques, and claiming VAT rebates. It also details good financial management techniques, handling negotiations with the tax bureau and annual audit and compliance procedures.
China's Rumored Luxury Tax Reduction Gets Cool Reception In Chongqing
Chongqing
As one of China's National Central Cities, Chongqing serves as a center for finance in the Sichuan Basin and the upstream Yangtze, as well as for manufacturing and transportation. It is a connection in the Yangtze River Economic Belt and a base for the country's Belt and Road Initiative.
. As the Chinese government clarified this week, the tax moves will not do away with the luxury tax altogether, but will rather decrease it to anywhere from two to 15 percent, depending on the product.
Still, price remains the key driver of outbound luxury shopping; As Jing Daily noted earlier this year, China's luxury tax tacks on a premium of up to 30 percent on imported high-end goods, one that shoppers can easily sidestep with a quick jaunt over to duty-free Hong Kong.
The standard purchase tax in China for all vehicles (ICE and NEVs) at the time of registration is 10 percent of the vehicle invoice price. Thus, for the next two years of 2024 and 2025, Chinese buyers may not pay any purchase tax for NEVs with a selling price of up to RMB 339,000.
China has a progressive income tax system, with seven brackets ranging from 3% to 45%[6]. The United States also has a progressive income tax system, but with fewer brackets (four in 2021) and lower rates (10% to 37%).
All goods imported into China are subject to the nation's value-added tax (VAT) of either 13 percent or 17 percent. The 13 percent tax is available for certain goods that fall mainly within the categories of agricultural and utility items, while the 17 percent tax applies to other goods subject to the VAT tax.
Tax is calculated based on a team's roster as of the last day of the regular season. The bill comes at the end of June, with half of the amount paid going to the NBA, in part to fund the NBA's revenue-sharing program. The remaining half is sent in equal shares to the teams below the luxury tax line.
China's notoriously high luxury tax, which adds a 30-40% premium to a wide (and ever-changing) array of goods -- from the usual suspects like handbags and jewelry to some sporting goods like golf clubs -- is a source of constant frustration for many luxury brand marketers.
The communist government has added a 10 percent import tax, effective Thursday, on "super-luxury vehicles" priced above 1.3 million yuan ($190,000). The Finance Ministry said it is aimed at encouraging "rational consumption" and curbing energy use and emissions.
What Countries Have the Highest Tariffs Placed on Cars? There are several countries that have very high tariffs placed on cars. For example, the Maldives places a tariff on cars at approximately 111 percent. India also places a very high tariff on cars, coming in at around 106 percent.
China's luxury car market is currently valued at an estimated $154.67 billion , and is forecast to climb at a CAGR of 3.35% from 2024 to 2029 to $181.49 billion – Gen Z will be responsible for a growing proportion of that growth.
The national wealth of the United States is around $98.15T, the U.S. is the richest nation in the history of the world. The national wealth of China is around $51.87T.
In China, the average monthly salary is 29,300 Yuan (Chinese Yuan), equating to USD 4,214 (US dollars) per month according to the exchange rate in May 2023 (according to Salary Explorer). Note: Renminbi (abbreviated RMB) is the official currency of China.
Ivory Coast. The country with beach resorts, rainforests, and a French-colonial legacy levies a massive 60% personal income tax – the highest in the world.
In general, visitors are permitted to carry out of the country up to $5,000 in foreign money. They are allowed to bring or take out of China local cash worth 20,000 RMB. Foreigners and native residents are both subject to this cap. There is nothing more that can be done because this is the maximum permitted quantity.
The following items are prohibited from entering China: arms, ammunition, and explosives of all kinds; counterfeit currencies and counterfeit negotiable securities; printed matter, magnetic media, films, or photographs which are deemed to be detrimental to the political, economic, cultural and moral interests of China; ...
There are no quantitative restrictions imposed on the foreign currencies, traveler's checks, or letters of credit brought in. However, inward passengers shall accurately declare to the Customs if carrying foreign currencies in cash worth more than 5,000 U.S. dollars.
IIT is imposed on all individuals, including Chinese and foreign nationals, residing in or deriving income from China. The comprehensive income is subject to three to 45 percent of progressive rates on the whole.
The standard CIT rate for enterprises registered in China, whether a local shareholder or a foreign shareholder, is 25 percent. There are numerous incentives and policies that may lower this amount for high-tech businesses, low-profit companies, and other companies that meet the criteria of the tax incentives guide.
Introduction: My name is Patricia Veum II, I am a vast, combative, smiling, famous, inexpensive, zealous, sparkling person who loves writing and wants to share my knowledge and understanding with you.
We notice you're using an ad blocker
Without advertising income, we can't keep making this site awesome for you.
Jun. 7 – Luxury tax in China has long been a source of significant revenues for the Chinese government, as anyone who has been able to compare the prices in China for luxury items to those in Hong Kong, for example, will be well aware.
The China Tax Guide (Fifth Edition)