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China will continue lowering its tariff on imported goods, including some of the medium and high end products such as cosmetics, luxury watches, etc, so as to increase the import of luxury goods and satisfy domestic demand. This marks the official confirmation of the rumor, which has been spreading widely for over a year, concerning the tariff cut on luxury products.

Ministry of Commerce spokesman Yao Jian said on June 15th that China will cut its import tariffs to a further degree, including the tariff on some of the medium and high end products. This is not the first time the Commerce Department had lowered tariffs on imported luxury goods.

According to a person close to the situation, the import tariff would experience a cut basically at around 2%-15%, not like what has been said in the rumor that the tariff would be totally exempted at one stroke. The tax cut would firstly to be exercised on cosmetics and high quality liquor and tobaccos. But the specific plan and time for implementation would be subjected to the final policy issued by Ministry of Commerce and State Administration of Taxation. “I believe the result would come out soon” said him.

Wang Yong, the Secretary General of the Brand China Industry Union (BCIU), said in an interview that by reducing the tax rate of products like cosmetics and high quality watches, China can boost the domestic demand for the import of the high end products and turn some of the consumption abroad into domestic purchase so as to increase the sales in domestic market.

Wang Yong also said that China's import tariff rate on luxury goods is generally between 15% and 25%, however, on some items (such as cosmetics and liquor) the rate is as high as 50%. Besides, luxury goods have to subject to a series of taxes and dues such as Custom Inspection Tax, Quality Inspection, VAT, Business Tax, and Consumption Tax before they finally made it to the store for sale. All these factors have directly given rise to the price of luxury products in China, which is almost 1/3 higher than the original price. In order to "avoid the tariff", each year Chinese people would spend at least 200 billion yuan in foreign countries on luxury goods.

Lowering Tariffs to Promote Domestic Demand

A survey conducted by Bain & Company on 2010 China’s luxury goods market shows that over the last year alone luxury goods suppliers had yielded 68.4 billion yuan from Chinese people’s pocket. Among the luxury goods, the sales of cosmetics, perfumes and personal care products is the largest, reaching a total amount of 16.9 billion yuan, while the sales of watches rank the second place with its 15.5 billion yuan sales revenue.

What’s more, a large part of the consumption takes place outside China. Public data reveals that in 2010, Chinese tourists have spent in the UK about 10 million pounds (about 11.2 billion yuan).

Therefore, Chen Deming (column), Minister of Commerce had repeated said in public that China will China will solve the issue of some of the luxury goods’ price in the domestic  market is higher than that in the overseas market.

Every year the tax losses caused by all these sales amounts to as high as 1 billion yuan, which makes it all the more pressing for China to adjust its import duty on luxury goods.  

According to the 2010 Chinese e-commerce market data monitoring report, in 2010, transaction on the overseas purchasing markets amount to 12 billion yuan, most of which are those of cosmetics and luxury goods. Even calculated by a tax rate of 40% per year, the loss of tax revenue is still as high as several billion yuan.

Therefore, since last year the Ministry of Commerce had set about to research on matters related to the tariffs cut on the imported luxury goods.

It is reported that a year ago, the relevant departments and agencies of the Ministry of Commerce had already hand in a drafted bill concerning the adjustment of import tariffs on luxury goods to the State Council for approval. The main categories of luxury products involved in bills include cosmetics, jewelry, clothing, bags, watches and other imported luxury products. Although this bill has attracted national attention and recognition, it involves too many kinds of products and departments. Therefore, the bill has been maneuvered among ministries, and consequently the categories and magnitude of the adjustment have not been decided. Finally, after a year of coordination, this year the tax cut would firstly to be exercised on cosmetics and high quality liquor and tobaccos.　　

Reliable sources reveal that according to the research of the Ministry of Commerce. Some industries hope that the tariff could be totally exempted at one stroke. However, this solution may not be adopted. Finally, Ministry of Commerce and other relevant ministries set the adjustment rate at 2% to 15%.

The direct result of the tax cut is that it turned the huge amount of luxury goods consumption into our domestic need. Yao Jin also said that Ministry of Commerce has recently adjusted its agencies, for example, the information of expanding consumption markets has shown in the new names and functions of the original Department of Market Operation. Meanwhile, we promoted e-commerce’s role in expanding consumption by renaming the Department of Information Technology as the Department of E-commerce and Information.

In view of this situation, Yan Qi, a researcher at Foreign Economic Research Institute, said that once implemented, the policy of lowering the tariff on luxury products can not only keep some of the luxury consumption inside China, but also can help to develop the related industry and supporting business.

Jiang Zengwei, Vice Minister of Commerce, also said that by lowering the tax rate of cosmetics and high-end products, some of the consumption abroad can be turned into domestic purchase and the sales in domestic market can be consequently increased.