Pol­icy shifts may fo­cus on lux­u­ries, to­bacco, pol­luters

China Daily (USA) - - BUSINESS - By JIANG XUEQING jiangx­ue­qing@ chi­nadaily.com.cn

In­dus­try ex­perts say that the main pur­pose of the much-dis­cussed pos­si­ble con­sump­tion tax over­haul is to adapt to the up­grad­ing of the con­sump­tion struc­ture in China.

Cer­tain cos­met­ics and tires that used to be re­garded as lux­ury goods have be­come ev­ery­day items for the pub­lic, lead­ing many ex­perts to rec­om­mend tax cuts on cheaper cos­met­ics, while rais­ing taxes on lux­ury prod­ucts and ac­tiv­i­ties, in­clud­ing to­bacco and golf.

Prod­ucts that are en­er­gy­in­ten­sive or highly pol­lut­ing could also be in­cluded in the scope of con­sump­tion tax col­lec­tion.

Jiang Zhen, a re­searcher with the Na­tional Academy of Eco­nomic Strat­egy at the Chi­nese Academy of So­cial Sciences, said the pos­si­ble ex­pan­sion of con­sump­tion tax col­lec­tion to top-grade ser­vices is walk­ing in step with the value-added tax re­form in May.

Re­forms of the value-added tax will bring tax cuts of about 900 bil­lion yuan ($135 bil­lion) to 1 tril­lion yuan at the lo­cal govern­ment level, which is roughly the size of the con­sump­tion tax rev­enue, said Xu Shanda, for­mer deputy ad­min­is­tra­tor of the State Ad­min­is­tra­tion of Tax­a­tion. Sta­tis­tics from the Min­istry of Fi­nance show that taxes on con­sumer goods na­tion­wide brought in rev­enues of 1.05 tril­lion yuan last year.

Ac­cord­ing prac­tice of re­forms, the to the usual pre­vi­ous tax cen­tral govern­ment will pro­vide sub­si­dies to the lo­cal gov­ern­ments as a re­form in­cen­tive. Many ex­perts sug­gest that the govern­ment should col­lect con­sumer taxes at the re­tail level rather than at the pro­duc­tion level and put them un­der lo­cal rev­enues.

Xu said mov­ing con­sump­tion tax col­lec­tion from the pro­duc­tion level to the re­tail level may also cre­ate some prob­lems, such as in­creas­ing the dif­fi­culty of tax col­lec­tion and man­age­ment, con­sid­er­ing that there are multiple layers of re­tail in China.

An of­fi­cial with the de­part­ment of fi­nance from a western prov­ince of China, who de­clined to be named, said con­sump­tion tax rev­enues pre­vi­ously be­longed to the cen­tral govern­ment, but due to pol­icy ad­just­ments, some of the small cat­e­gories of tax­a­tion, such as solid hard­wood floor­ing, may turn into lo­cal govern­ment rev­enues. Taxes on liquor con­sump­tion are also likely to be par­tially re­turned to the lo­cal govern­ment.

How­ever, this change will bring lim­ited growth of lo­cal rev­enues be­cause more than 90 per­cent of con­sump­tion tax rev­enues come from to­bacco, liquor, oil and au­to­mo­biles, which are still mainly cen­tral govern­ment rev­enues, said Zhang Bin, di­rec­tor of the de­part­ment of tax­a­tion stud­ies at theNa­tional Academy of Eco­nomic Strat­egy of theChi­nese Academy of So­cial Sciences.

ex­pected tax cuts re­sult­ing from re­forms of the value-added tax

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