In a move that surprised Chinese citizens residing abroad, Beijing has started taxing overseas income. According to Bloomberg, state-owned enterprises operating in Hong Kong asked mainland Chinese expats to report their 2019 earnings so they can be taxed on their worldwide income. Employees working in other countries, such as Singapore, were also briefed on the change. With this new roadblock looming for the Chinese expat community, it’s expected that many individuals will reconsider moving to places that enjoy low effective personal and corporate tax rates like Hong Kong or Singapore.
Luxury and premium goods have a high income elasticity of demand; thus, demand for discretionary goods will decrease when there’s a drop in disposable income due to such things as a tax hike. Furthermore, many luxury products are often seen as long-term investments, but high taxes reduce saving, investments, and capital gains. Equally important, higher taxes also have a negative impact on consumer confidence, so it’s expected that some consumers will forego shopping at non-essential businesses given this new policy. The silver lining, if there is one, is that some short-term Chinese expats will decide to return home. Evidently, the repatriation of expats in China could also incentivize purchase repatriation. China being a collective society, consumers could feel the social pressure to buy visible symbols of status and success, and this would hike demand for luxury goods in China.
The Jing Take reports on a piece of the leading news and presents our editorial team’s analysis of the key implications for the luxury industry. In the recurring column, we analyze everything from product drops and mergers to heated debate sprouting on Chinese social media.