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Reform of consumer spending tax on its way

By Mi Yunjing (chinadaily.com.cn) Updated : 2016-06-22

Now that the value-added tax has become a reality, a number of experts have said that China has new opportunities to change the goods and services tax.

Tax adjustments are accelerating, including in scope and how they are levied, Economic Information Daily reported on June 20, noting that energy-intensive products, top consumer goods and services could be a focus of the tax.

In this, the focus shifts away from taxing the production to sales and revenues are expected to be shared by the central and local government rather than just being the central government’s property. The tax mainly covers 13 items including tobacco, alcohol, cosmetics, jewelry, jade, industrial oil, and automobiles and some new products will be added to the list while others will be removed.

Experts, noting that, back in 2006, there was a consumer spending tax reform where cosmetics were no longer taxed, point out that this retail tax will be adjustable, to adapt to the changing nature of consumer practices. Therefore, certain cosmetics will no longer be taxed because they are considered normal consumer goods rather than luxury goods.

And, they say, the taxes on cosmetics should be reduced or perhaps eliminated while those on high-end, luxury goods, including tobacco and golf, which are enjoyed by fewer people, should stay the same or even be increased.

They added that retail prices are higher than for ex-factory or wholesale, so, consumer spending tax revenues will rise a lot, so taxes should be adjusted. But, this regulation may become controversial as the number of taxpayers grows, and the law may be more difficult to enforce, for example at the retail level, where consumers may not be very happy bearing a heavy burden, in which case demand could fall as a result, leading to a decrease in tax revenues.

In relation to this, Jiang Zhen, of the China Academy of Social Sciences, has commented that, for some products, the tax collection costs could go up, which does not benefit the consumer tax reforms, and making up for shortfalls in tax revenues cannot be the only objective of this process. And it is important to take collection costs and the general effect on the local government into consideration.

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