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China: Taxing Issues

Mainland China taxes luxury goods luxuriously, in much the same punitive spirit that America taxes nicotine.

Appeared In
Special Issue
Beauty Inc issue 09/12/2008

Mainland China taxes luxury goods luxuriously, in much the same punitive spirit that America taxes nicotine. While it depends on the product category, the luxury tax hovers at around 17 percent, combined with an average income tax of 13 percent. Even many items that are “Made in China” are subject to these charges, as well as shipping expenses, as companies lack the authorization to ship directly to their Mainland outlets. China also offers many other expensive inconveniences.

Such costs are often passed on to consumers, despite the fact that even upper and upper-middle class Chinese consumers have vastly lower comparative and absolute spending power than their Western equivalents. Many brands charge 50 to 100 percent more in China than in Hong Kong, Europe or the U.S. For example, one well-known prestige market antiaging serum from an American brand costs $77.50 for a 1-oz. bottle in China versus $46.50 in the United States, a 66.7% markup.

Some say companies use pricing to position their brands as premium and raise prices because they can, a presumption of consumer naïveté. But that’s not likely to last long.

Says Estée Lauder’s China managing director Carol Shen, “Chinese consumers are becoming more sophisticated. Just as they demand better living standards, they also demand better quality products.” And as they get more sophisticated, no doubt they’ll start demanding more parity in pricing, too.