Debate: Luxury goods
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China Daily, July 11, 2011
Deng Jinglong: We should aim at balanced development
In these times of rising commodity and housing prices, the public will react sharply to any news of further price rise and welcome news to the contrary. But the news of a possible reduction in the tax on luxury products has to be analyzed properly, even though it is aimed at making consumers who tend to go on a shopping spree during their travels abroad turn to the domestic market.
Surprisingly, two national departments are locked in a battle. The Ministry of Commerce has announced that a common agreement was reached on the issue, but the Ministry of Finance has responded by saying it was not aware of it.
China has become the second largest luxury goods consuming country, but many people buy these luxury products overseas to avoid the high import duty on such goods imposed by the Chinese government.
Some netizens oppose the tax cut on luxury goods. They say an important role of a tax is to "take from the rich to give to the poor". So the high tax on luxury products should be justified, because they are bought by rich people. The argument seems correct. But there is a problem. Nowadays, not only the rich, but also some middle-income group people buy many of the so-called luxury products.
The fast pace of economic development over the past three decades has brought about a significant change in Chinese people's consumption habits. Some consumers treat many a luxury product just as a simply high-priced commodity. Cosmetics and perfumes, which cost a few hundred yuan, and some moderately expensive watches, worth a few thousand yuan, are some of the so-called luxury products that many middle-income people can afford today.
But if any of these products is available at half or 60 percent of the price in a foreign country, any Chinese traveling overseas would prefer to buy it there. No wonder, a major part of the agenda of many Chinese people traveling abroad is shopping for some so-called luxury goods.
Looking at the issue from such people's point of view, the tax on some imported luxury goods should indeed be reduced. For example, the tax on so-called luxury products that have become popular among Chinese consumers, such as clothes, perfumes, cosmetics, watches and bags, should be reduced. This will help keep a large amount of the money that Chinese travelers spend abroad in the domestic market and create more jobs in the country.
To maintain stability in the domestic market, however, tax on all luxury products should not be reduced. The tax on high-end luxury goods like branded bags that cost thousands of yuan, and sports and custom-made cars that can cost millions of yuan should not be reduced. In fact, the government should increase the tax on such products. After all, such luxury products are bought only by the rich, who are not so sensitive to price rise.
In short, the key to ending the dispute over tax on luxury goods is to classify luxury goods in the light of the changing times. Tax should be levied on a product according to its classification.
To begin with, tax on some popular consumer goods should be reduced and that on real luxury products, which are consumed by only the rich, should be increased.
The article first appeared in the tianjinwe.com.
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