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High-end consumers feel low

By Sun Xiaohua (China Daily)
Updated: 2006-03-23 05:54

Consumers of high-end products were predictably upset yesterday at news that a consumption tax would be slapped on luxury goods.

With effect from April 1, yachts, and golf clubs and balls would attract a levy of 10 per cent while luxury watches would be taxed at 20 per cent, the Ministry of Finance said on Tuesday.

"It is really bad news," said Yang Jie, an IT worker in Beijing who had planned to buy a 20,000 yuan (US$2,460) Omega watch to mark her 28th birthday.

Now that a 20-per-cent consumption tax is to be levied on high-end watches, she would have to cough up an extra 4,000 yuan (US$500) for her dream timepiece.

"I would rather buy the watch when I travel to Hong Kong during Christmas," she said.

But some consumers believe the effect will be minimum.

"Who buys luxury items on the Chinese mainland? The prices here are much higher than overseas," said Ding Su, whose husband is an IT company manager and buys golf clubs and balls abroad.

"Take my husband's new set of Callaway golf equipment, he bought it in the United States for US$3,000. In China, the price is double."

And as for those who do buy high-ticket items, her question was: "Do you think those who can afford yachts and limousines worry about paying consumption tax?"

HSBC economist Qu Hongbin wrote in a research note that higher consumption taxes on luxury goods bode well for Hong Kong, because it would become a more attractive shopping hub for middle-class mainland consumers.

As for the 5-per-cent tax on disposable chopsticks, levied to prevent exploitation of timber resources, small restaurants could stop giving them for free, Jia Feiyue, deputy manager of catering giant Judehuatian Group, was quoted as saying.

The group, famous for its Peking roast duck restaurant chains, had already given up using disposable chopsticks.

With the 5-per-cent tax on wooden floor panels, an insider in the interior-decoration industry said it would not influence the price much, local media reported.

One thing many buyers are cheering is the scrapping of the 8-per-cent consumption tax on skin- and hair-care products.

That tax was imposed in 1994, when such products were still considered luxuries. Thanks to China's rising level of affluence, they are now viewed as daily necessities.

"We welcome the move,"said Giorgio Magistrelli, executive general manager of the European Union Chamber of Commerce. He expressed the hope of seeing "further improvements in the taxation of cosmetic products."

(China Daily 03/23/2006 page1)