Storytime Tapestry Newsletter

The newsletter devoted to spreading love and cultural awareness around the world.

March 31, 2007

Wonders of the Orient

A Kun (Jastine) Leng Column

Sales Taxes Head up

as Imported Goods Put off Buyers

Boom Seen in Purchasing Ebb

Good News for Consumers Falling Hard on Producers

Or Bad News for Both?

Jastine Leng

Edison Hoo sits surfing the Internet when a rust brown cockroach dances across his desk. The paunchy Chinese manager swats with his hand, missing badly, then purses his lips and blows the tiny intruder from the keypad on his phone. As the creature scurries free, the manager’s computer screen resumes an account of his ongoing search for the cheapest wooden floorboards retailing for his new home.

This week the State Ministry of Finance made a claim that it would raise sales tax on certain luxuries, ranging from magnificent cars to golf equipment, from imported make-up to once-and-for-all wood chopsticks. The policy will be brought into effect on January 1. 2007.

Sales tax, or VAT (value added tax) as it is called in Britain and the European Union, is a tax that consumers have to pay in addition to the cost of the goods they are buying. Different goods are taxed according to actual situations, so as to balance consumption and promote the development of economy.

Sales tax is rising across the country, squeezing individuals who are faced with high wooden floorboard and car prices after a deep ten-year slump.

The turnaround appears to be a sign that the boom in wooden floorboards and cars is coming up, as homes will become more expensive in metropolitan areas after the deadline of January 1.

Mr. Zhang Bin, a professor at the Chinese Academy of Sciences and Technology, predicted on December 25 that the furnishing boom could be reaching a peak in the following week. The median sales tax on wooden floorboards and cars would rise considerably, said Zhang.

Still, the numbers of new luxury cars that were sold continued to grow, and economists cautioned that it might have little effect on the life of the petit bourgeois, reducing instead the confidence of the ordinary people.

Sales tax on luxuries will rise by at least 15 percent, according the released statistics from the Ministry of Finance. Only oil, medicine, and tobacco remain unchanged.

At present, a Malbelline stick of mascara costs an average of RMB 98 yuan, and best of all, customers may get additional gifts at occasions like lipsticks.

By January 1, the enticements will have shrunk to probably nothing at all, and all that a new customer receives for a bill of RMB 98 yuan might be a half-sized stick of mascara.

Even in Shanghai—where average sales tax will rise about 20 percent, according to a rough estimate—the car boom is still going on. Most car companies have reduced the price of luxury cars and raised that of mini, economical ones. “I’m appalled at the increasing prices and what they are asking in relation to what they are giving,” said Mr. Wang, who has been looking around the car market, pinning his hopes on getting a cheap car for his family. “You are not getting what you pay for, and my hopes seem to have been dashed.”

The BWM car that he has a crush on costs almost 1.8 million, about 300 thousand or more than it did when he brief looked last year, he recalled. Besides, the oil prices are still increasing, which will “put a heavier burden on me as an ordinary office worker,” murmured Mr. Wang in a crestfallen tone.

In most places, sales tax on once-and-for-all wood chopsticks will also be raised—smaller in fact than on imported make-up and luxury cars. “It seems to me that forests will bottom at the end of this year,” said Dr. Shang, chief operating officer of an Environment Management Company in Beijing. “I can’t quite figure out why we Chinese don’t use stainless steel like Koreans do, which will save a lot of woods.”

Many of the biggest sales tax increases on wood chopsticks occur in cities like Chengdu, Ningxia, Lanzhou and Guizhou, where light regulation and poor awareness of environmental protection allowed restaurant owners to put up bunches of once-and-for-all wood chopsticks. “A handful of wood chopsticks cost me merely RMB 3 yuan previously. But now, I pay the same amount of money to get only a quarter,” explained Ms. Lee, a restaurateur in the commercial district of central Chengdu, taking a break from calculating checks. “I’m afraid my business will suffer.”

Ms. Chen, a loyal client of Lee’s restaurant, said she was concerned that the food prices would also rise in accordance with increasing sales tax on wood chopsticks, although she acknowledged “it is a good way to curb the denudation of trees.”

Not only ups, there are also downs in the new tax policy. One conspicuous example is the sales tax on motorcycles. “Around 1994, motorcycles were mainly owned by the rich, and the sales tax at that time was 10 percent. With the development of society, the boom has transferred to the countryside. Man farmers but substandard motorcycles because of the high sales tax they can rarely afford to pay, which has resulted in countless traffic accidents and tax evasion. Now the Ministry of Finance lowers the tax to only 3 percent. I assume it will enable a larger group of farmers to purchase standard motorcycles since the tax matters little to them then,” analyzed Mr. Zhang Bin.

Nonetheless, one suspect thing is not on the list—the luxury villa. The authorities explained that “villa owners are charged property tax”, a tax based on the value of the house per square meter, which keeps rising every year.

A number of experts have expressed concerns toward the new tax policy. Mr. Zhang Bin, once again analyzed that the policy was based on the egalitarianism—the rich should be charged more taxes and the poor less, thus it aimed to bridge the gap between different classes of people. “Government should encourage people to purchase economical consumer goods and bring into their mind the outlook of scientific development, which to a certain extent will restrain corruption.”

“The surge in the sales of cars, wooden floorboards and make-up before January 1 reflects people’s concerns about the increase of sales tax, which I personally hold is a good phenomenon. On the other hand, a series of problems arouse. First, some companies and retailers are likely to maintain their current prices despite increasing production costs, in order to gain unfair advantage in the market. Second, the measure is redolent of Chinese characteristics. For example, how many officials will appear as martinets in the temptation of fortune? Third, whoever the responsibilities will fall upon, individuals or corporations? Last but not least, most ordinary workers are worried that they can afford fewer goods after sales tax is raised, which will definitely undermine their confidence. So how the domestic economy will be affected by the policy is uncertain.” Mr. Zhang Bin recapitulated that “this policy is brought out for the sake of the masses of the people, and the central government will do as little harm as possible to the people. It is to rob nobody of his purchasing power, but to restrain expenses on luxuries. The less people spend on luxuries, the less influence the measure will exert on them. For instance, if people get granite or cement rather than wooden floorboards, how will they be affected on that? Perhaps the policy will benefit the working class more, I think, and it will strike root in people’s heart the outlook of scientific development.” Mr. Zhang Bin finally cautioned that customers should keep cool in the hot upsurge of discount advertisements in the remaining few days before the new tax policy is taken into effect.

Jastine Leng

 ghoul_pink_fantasy@yahoo.com