Why new customs duties won't affect the luxury goods industry

New regulations over import duty have stirred controversy over their impact on the price of luxury goods, but consumers have not realised their real impact

The General Administration of Customs released new regulations levying higher import duties for imported luxury goods (中华人民共和国进境物品归类表) on March 26 that came into effect on April 15.

The average tax rate remains unchanged, but the dutiable value of goods like cosmetics and handbags has greatly increased.

The regulations have caused much controversy in China as consumers believe this will cause domestic prices to rise, as reported in China's Global Times. According to the World Luxury Association's Report released this year, China is the world's largest consumer of luxury goods.

Commentators have claimed that China customs released the regulations to keep wealth within the country, but this is based on a false interpretation.

“There is a misunderstanding over these regulations, there is no major change in policy here,” said Peter Ni, partner and tax specialist at Zhong Lun Law Firm in Shanghai.

There was much talk last year from the government about lowering domestic tax rates of luxury goods. However, these regulations do not affect goods sold within China, but refer to imported goods coming through customs.

“They have nothing to do with the government's policy considering lower tax rates in order to keep wealth inside the country,” said Ni.

China places high tariffs on foreign luxury brands and if the government wants to bring consumption back to China, they need to encourage individuals to purchase in China, to benefit from domestic tax rates.

Foreign brand owners can find the China market especially difficult, as the high taxes persuade mainland buyers to go abroad to buy the same products at cheaper prices.

China customs last enacted a policy for dutiable goods in 2007. The new regulations are part of a periodical review.

“The main reason for the regulations is the price of luxury products has risen and customs wants to bring taxes in line with the new prices,” said Ni.

A black market for purchasing goods overseas has emerged in recent years to avoid customs duties. But Ni says the regulations will not discourage this market. The regulations also do not mention stricter policies enforcing import duty.

Foreign brand owners also find this black market affects their sales, as buyers no longer have to leave the country to purchase luxury goods. In theory, the regulations will make bringing luxury goods into China more expensive, but in reality, without enforcement little will change.

The regulations have created misunderstanding as people have not realised that impact is quite low for consumers and for luxury foreign brand owners. It remains to be seen how the government will proceed in order to keep wealth in China, but these regulations are not the answer.

By David Tring

Why new customs duties won't affect the luxury goods industry

Further reading:

This premium content is reserved for
China Law & Practice Subscribers.

Why new customs duties won't affect the luxury goods industry

Further reading:

This premium content is reserved for China Law & Practice Subscribers.

This premium content is reserved for
China Law & Practice Subscribers.