China's High Luxury Tax Under Fire

Dalian Wanda Group Chairman Wang Jianlin Appeals To Chinese Government To Cut Luxury Tariffs Dalian Wanda Chairman Wang Jianlin (王建林) China's high luxury tax, which imposes a premium on imported high-end goods of up to 30 percent, is a hot topic in the Chinese-language media, and has only become more talked-about since the finding last fall by Bain & Company that over 50 percent of luxury purchases by Chinese shoppers in 2010 were made overseas. With Chinese shoppers looking for any way to sidestep the stiff luxury tax, whether through online shopping or trips to duty-free havens, the Chinese government has imposed tough retroactive taxes on purchases made in Hong Kong or Macau by mainland tourists via tougher enforcement of so-called "Rule 54." However, Beijing isn't the only one with a vested interest in getting Chinese shoppers to spend closer to home. In recent years, as foreign luxury brands have invested millions into their China operations only to see stores function more as showrooms than points of purchase, they've tried to fight consumer resistance to the luxury tax by releasing "China-only" limited edition collections to entice potential shoppers to stay local. This week, under the backdrop of Beijing's annual National People's Congress (两会), a new opponent to China's luxury tax has emerged: Wang Jianlin (王建林), chairman of the Dalian Wanda Group. At today's Chinese People’s Political Consultative Conference (CPPCC), Wang, whom Jing Daily previously profiled as the owner of the largest yacht in China (which likely also makes him an opponent of the country's new yacht tax), has spoken out in favor of dramatically lowering the luxury tax in order to stem the flow of money to overseas retailers. According to China's National Tourism Bureau, Chinese tourists took 2.1 billion domestic trips last year, spending a total of around 1.1 trillion yuan (US$167 billion), but per capita spending only amounted to 524 yuan, or US$80. Compare this with the comparatively low 54 million trips taken by outbound Chinese tourists, who spent at least 315 billion yuan (US$48 billion) overseas in 2010 and 5800 yuan ($883) each -- 11 times as much as domestic tourists. Speaking to the CPPCC, Wang Jianlin said that the luxury tax is the single biggest obstacle to the development of a shopping culture in China that can attract tourists and compete with New York, Paris or London, and recommended the government reduce the tax to "international standards." From the Beijing News (新京报): Wang Jianlin feels that the main reason that [Chinese] tourists flock to overseas locales to purchase luxury goods is China's stiff luxury tax, which leads to a huge price difference between similar goods purchased at home and abroad. Wang said that high tariffs don't actually decrease demand for luxury goods, but rather induce consumers to look elsewhere (e.g., abroad) for these goods. Continuing, Wang told the CPPCC that the luxury tax inhibits job growth and decreases tax revenue, as "Chinese people sit on airplanes to deliver jobs and tax money to foreign countries." Wang then said that one of the main draws that all major tourist destinations, such as Paris, New York, Hong Kong and Dubai, have in common is shopping. While many cities in China are popular among tourists, Wang pointed out, they're famous not for shopping but for sightseeing. This, to Wang, is akin to walking with only one leg. Lowering the luxury tax would, he said, help mainland China build a "shopping paradise." Wrapping up, Wang recommended that the CPPCC immediately put in place new policies to reduce the import duties on luxury goods to match international standards, in order to develop Chinese tourist destinations into shopping destinations, to increase the domestic consumption of foreign luxury goods by Chinese consumers, and to attract more foreign tourists to China to shop as well as sight-see. Although Wang, as the chairman of a major real estate company, has an obvious business interest in the construction of new shopping venues, it will be interesting to see whether his entreaties to government officials result in action or simply fall on deaf ears. The country has shown a particular interest in encouraging the formation of "made in China" luxury brands, and may see Wang's proposal as an endorsement of the foreign brands that currently dominate the high-end market.

China's High Luxury Tax Under Fire

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Published March 03, 2011

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China's High Luxury Tax Under Fire