China to Slash Taxes on Luxury Handbags, Shoes

June 23, 2011
Policymakers are trying to reduce reliance on exports since 56% of China's luxury purchases in 2010 were made overseas.

China, the world's fastest growing market for luxury goods, is expected to reduce or scrap taxes on imported high-end products to boost domestic consumption, state media reported earlier this week.

A new tax system for luxury products is to be introduced by October 1, the 21st Century Business Herald said -- the beginning of a week-long holiday for National Day and a shopping frenzy for Chinese consumers.

China's steep luxury taxes -- which are as high as 60% -- have for years sent well-heeled shoppers swarming to Hong Kong and Europe for products such as Louis Vuitton handbags and Rolex watches to avoid the hefty tariffs.

The finance ministry's revamped system will reduce or remove taxes for products such as watches, clothes, shoes, suitcases, cosmetics, perfumes and milk powder, the newspaper said, citing unnamed sources.

Commerce ministry spokesman Yao Jian said last week that it was a "general trend" for China to cut tariffs on mid- and high-end consumer products as part of the nation's efforts to boost domestic consumption. There has been "consensus" on the issue among various government departments, Yao said.

Policymakers are trying to boost domestic spending and reduce their reliance on exports and investment to drive the world's second largest economy.

Chinese demand for luxury goods has exploded in recent years along with rapid economic growth and the country is forecast to be the world's top buyer of such products by 2015, according to consultancy PriceWaterhouseCoopers.

Fifty-six percent of China's luxury purchases in 2010 were made overseas, according to a study published by consulting firm Bain & Company in November.

Copyright Agence France-Presse, 2011

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