China imposes yacht tax
By IBI Magazine/YP Loke
China has imposed a 10 per cent luxury tax on yacht ownership, at a time when the industry is still in the embryonic stages of development and needs nurturing.
Yachts were caught in the dragnet of tax reform when the Chinese government announced sweeping changes to the country's consumption tax laws, aimed primarily at the luxury goods market.
China's booming economy coupled with a growing urban population and more mature and discerning consumers has led to a larger appetite for luxury goods. Ernst & Young reported China's luxury goods market to be the third largest in the world, and is expected to grow at 20 per cent annually for the next three years. It estimates volume will top US$11.5 billion by 2015 to become the second largest luxury goods market after Japan.
But high economic growth spawns its own set of problems. High income disparity is not unusual in emerging markets where the typical growth dynamic sees budding entrepreneurs and insiders seize the business opportunities and pull away from the crowd to form a new wealth class. In China, there are an estimated half million US dollar millionaires — enough to draw all the major boat manufacturers to its doorstep. The problem, from a policymaker's perspective, is that the wealth gap — a contributor to social instability — is not only unacceptably large, but is increasing.
Against this socio-economic backdrop, the government announced the broadening of consumption tax to embrace luxury items, including yachts. Commencing April 1, 2006, yachts, golf clubs and golf balls will face a 10 per cent tax, while high capacity automobiles, luxury watches and hard liquor (baiju) will be taxed at 20 per cent. On the other hand, taxes on skin and hair care products will end (this tax was introduced in 1994 when such items were considered luxuries).
New taxes were also introduced for disposable chopsticks and planks for wood floors. Clearly, in addition to the business elite, policymakers were also aiming to address the country's environmental record.
(23 March 2006)
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