China’s tax reform may target consumption tax following value-added tax, resource tax and environmental tax, according to Economic Information Daily. This round of consumption tax reform will focus on expanding collection coverage, and adjusting structure of tax rate and procedure of collection. Resource products, luxury products and consumption like fur and leather, redwood furniture, private plane and golf may be included in tax collection coverage. Experts suggest setting tax items of luxury products and consumptions under consumption tax and establishing taxation coverage adjustment mechanism.
China’s current consumption tax system started in 1994 and saw remarkable adjustment in 2006. It includes 13 items such as cigarette, wine, cosmetics, precious jewelry and jade, refined oil products and small vehicles. China’s consumption tax revenues recorded 1,021.723 billion yuan last year, only second to value-added tax, corporate income tax and business tax.
As an important part of this round of financial and taxation systems reform, consumption tax reform is defined to adjust coverage, procedure and rate of consumption tax, and to include products with severe energy consumption and pollution and some luxury products into its collection coverage. However, the overall proposal for the reform hasn’t been unveiled, and details related to the contents haven’t been decided.
Battery and paint were included into the coverage of consumption tax in 2015. Ordinary cosmetics were exempt from consumption tax, and premium vehicles valued at over 1.3 million yuan were included in the tax in 2016. Consumption tax saw coverage expansion and promotion gradually.
“Currently, emphasis is still put on work of replacing business tax with value-added tax. After the replacement is improved, consumption tax is very likely to be next reform target.” An industry insider told the reporter.
Zhang Xuedan, director of the Research Institute for Fiscal Science at the Ministry of Finance, pays attention to consumption tax reform for a long term. He said to the reporter that expanding coverage of consumption tax includes products with serious energy consumption and pollution, resource products, luxury consumer goods and luxury consumer behaviors.
As for luxury consumer goods, Zhang pointed out that premium clothing, fur and leather products, foods and healthcare products like sea cucumber, abalone, shark fin, edible bird’s nest and Chinese caterpillar fungus, luxury wood furniture, and transportation means like motor homes and private planes can be considered as luxury consumer goods.
Including some high-end services into consumption tax is another trend of the reform. Jiang Zhen, associate researcher at the Financial Strategy Institute of Chinese Academy of Social Sciences, said to the reporter that consumption tax is only levied on tangible products. But after business tax is replaced by value-added tax, the latter covers all industries including service industry. Hence, the coverage of consumption tax should involve intangible service product accordingly. “”
Zhang suggested including some premium consumption behaviors in places such as KTV, ballroom, golf and bowling alley, and other behaviors like hunting and aircraft leasing into consumption tax coverage. He also advised to set tax item of luxury products and consumer behaviors under consumption tax, and include related products and consumer behaviors into the two items respective.
Besides, in his opinion, it is necessary for China to establish consumption taxation coverage adjustment mechanism and to adjust the coverage at proper time.
As for the process of tax levy, “it is essential to reasonably determine the process based on different consumer goods.” Zhang told the reporter that tax on some consumer goods like precious jewelry and jade, firecracker and fireworks, motorcycle, vehicles, yacht and refined oil products can be levied at retail link; tax on some consumer goods which lack conditions can be collected at retail link when conditions are ripe. Tax on some commodities will continue to be collected at production link.
At present, consumption tax in China is a central tax. Another highlight of this round of consumption tax is that it is expected to turn from central tax to sharing tax. After the replacement of business tax with value-added tax, major tax in local places decreases. It is urgent to build local tax system and promote consumption tax reform.
Jiang pointed out that in view of enthusiasm of local governments and collection and management of consumption tax, the country can try to allow local governments to collect some tax items, which will stimulate them to enlarge consumption.
Some industry insiders pointed out that consumption tax reform should coordinate with central and local revenue distribution reform and should be taken into consideration of the overall tax reform. Therefore, it will take time before proposal on consumption tax reform is introduced.
(By Vanessa)
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