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Wider luxury tax net may boost HK retailers

Bloomberg and Winnie Chong

Thursday, August 29, 2013

The mainland is set to widen the scope of its consumption tax to include more luxury goods, making some high-end brands more expensive.

But Xinhua News Agency did not specify which new items would be taxed in an article citing a report by finance minister Lou Jiwei to the Standing Committee of the National People's Congress.

Beijing is also targeting goods that cause heavy pollution or use excessive levels of energy for consumption-tax adjustments.

The move may mean good news for Hong Kong and overseas retailers, as the higher tax will drive mainland consumers to buy luxury products overseas rather than at home.

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Currently, high-end watches are slapped with a 20 percent consumption tax while it is 5 percent for gold, silver, platinum and diamond jewelry. Gem sets are subjected to a 10 percent tariff.

High consumption and import taxes are already driving mainland buyers to make luxury purchases overseas rather than at home.

Close to a third of mainland luxury buyers will shop in Europe this year, industry consultant McKinsey & Co estimates, up from a fifth last year.

Mainland consumers are set to make up a third of luxury consumption globally by 2015, up from 27 percent last year, McKinsey added.

Leo Sin Yat-ming, marketing professor at Chinese University of Hong Kong, said most mainlanders already tend to buy luxury goods overseas, where they are cheaper, there are more choices, and the services are better.

Hong Kong retailers have an obvious edge over others elsewhere, including knowing mainland buyers better.

"There are different stages of being luxury goods buyers," Sin said. "Some want to show their wealth, while some want to obtain knowledge to reflect their taste."


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