Spot-lite: China’s consumption tax reform plans

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Development Research Center of the State Council, Macroeconomic Research Department, Research Deputy Director Ren Zeping 任泽平 stated consumption tax revenues might switch from central government to local government, following consumption tax reform later this year.

The immediate benefit would be to bolster local government balance sheets to the tune of around RMB 1 trillion. This is particularly useful given local governments current dependency on land revenues, which are facing strong headwinds.

The second benefit would be to encourage local governments to raise domestic consumption levels. This forms part of the central government’s long term strategy of pivoting tax revenues away from production and import to retail and wholesale sectors, helping more stable growth.

Consumption tax reform will include reducing overall energy waste by targeting high energy consumption and pollution industries, for example batteries and fuel. Conversely those low emission or alternative energy vehicles could see levies reduced or be exempted entirely.

Another target would be luxury goods, which are less price sensitive to high income groups. Alcohol and tobacco, private boats and planes could see consumption tax hikes. Whereas everyday cosmetics would see levies reduced.

These consumption tax reforms were proposed during last year’s Third Plenum meeting, which stated that consumption tax adjustments could be made in terms of scope, sectors, and rates. Namely to levy tax on high energy consumption and polluting sectors, and luxury goods.

On June 30th this year, the Ministry of Finance released further details of ‘plans to deepen finance and taxation system reform’ 《深化财税体制改革总体方案》. An insider reveals that implementation could occur by October.

(Article not to be copied or reproduced without permission or citation).

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