Local Chinese news sources suggest the government is mulling comprehensive consumption tax reforms that could have deep repercussions for the global luxury goods market.
China is a prominent and important buyer of international luxury brands, comprising around 30% of sales globally, but if sources are accurate, high-end goods may be the first to be piloted under these reforms.
Some economists in China, including Liu Rong, dean of the School of Finance and Taxation at Southwestern University of Finance and Economics, believe that existing taxes for high-end even luxury consumer goods are insufficient.
This puts ‘hard luxury’ items including watches and jewellery, in the firing line of potentially higher consumer-level tax burdens.
Other niche categories, such as private jets, entertainment and high-end furniture, are not included in the scope of consumption tax collection at all.
Concrete details are thin on the ground, but analysts at UBS warn that “if confirmed, this could… be taken negatively for luxury, especially hard luxury names [i.e. Swatch and Richemont] given that the category is expected to be piloted first”.
UBS predicts that higher consumption taxes will dampen domestic Chinese demand for luxury goods, thus making more purchases dependent on international tourism.
Luxury goods prices are already 20% higher in China than in the rest of the world, according to UBS data; these unconfirmed proposals will only push the gap even wider.
According to UBS, luxury watchmaker The Swatch Group would see the biggest impact “given the company's relatively high exposure to the Chinese cluster”.