Expect more consumption taxes, as government revenues continue under strain

The mainland is expected to raise import tax on luxury products in attempts to crack down on ostentatious spending and help replenish dropping tax revenue, according to market watchers.

The Chinese authorities started imposing an additional 10 per cent tax on “ultra-premium cars” in December with a price tag of more than 1.3 million yuan.

They also halved the levy on upscale skincare and cosmetics to 15 per cent but exempted mass products altogether from paying, from October 1, 2016.
Market watchers say such moves reflect ongoing reforms on excise tax to “guide [more] rational levels of consumption”.

“We are expecting more tweaks [to be made] in consumption tax in the coming years as the authorities are given more space to ramp up reforms in the segment, once they have dealt with the overhaul of the value-added tax (VAT) framework in 2016,” said Kevin Zhou, an E&Y tax partner in Shanghai.

Chinese tax officials embarked on major structural changes to VAT last year, in an effort to align the country’s indirect tax policies with international practises.

The country completed its VAT overhaul on May 1 last year, after which four key sectors – finance, construction, property and consumer services – were subject to VAT instead of business tax.