By David Robinson
A new consumption tax is to be introduced on China’s wealthy as part of a government policy to level some of the income inequality issues in the country. Owners of luxury yachts and private aircraft will be among those hit.
According to a CCTV News report, a senior official of the Finance Ministry’s Financial Science Institute indicated that the wealthy and environment-damaging items such as batteries would be affected by the new tax as part of a reform programme.
Yang Zhiyong, research fellow with the National Academy Of Economic Strategy, CASS, told CCTV: “Taxes on luxury goods like private jets and yachts will help expand the fiscal revenue and at the same time level some of the income equality issues.”
According to a recent survey from Peking University, around one-third of wealth in China is held by just 1% of the population with the difference felt most between the affluent east coast and the interior.
The report concludes that while the country is getting richer as a whole, the average net worth of a Chinese household rose only 17% to $71,000 in 2012 from 2010.
This will not be good news for the ongoing development of the yacht industry in China, especially at the larger end.
No indications have been given as to when the tax will be introduced or what levels it will impose. Inequality is now recognised as a serious issue in China, with the country having the highest growth rate of high net worth individuals (HNWI) in the world along with India. The government, as part of its policies against corruption and austerity, is keen to address the issue.
For wealthy Chinese wanting to import foreign-built luxury yachts into China there is already a heavy tax and duty burden amounting to 43% of the value of the yacht. Also, no yacht over one year old can be imported into China. Many wealthy Chinese get around this tax by keeping their yachts in Hong Kong or elsewhere. Hong Kong, however, has no spare large yacht berths available and there are no plans at present to develop any new ones.
Yang added: “It is still hard to say how much the consumption tax will have an impact on the sales of luxury goods like private jets and yachts. We can’t depend on this means alone to address the income gap issue. The definition of luxury goods should match the economic development,” Yang said.