By  on June 21, 2011

SHANGHAI — China is planning to reduce or possibly even eradicate taxes on imported luxury goods, state media reported Monday.

The finance ministry will introduce a new tariff system for overseas products, including high-end goods, by the beginning of October, the 21st Century Business Herald said. The newspaper did not outline any specifics of the new plan, only reporting that taxes will be lowered or removed on cosmetics, perfumes, watches, bags, shoes and watches.

The aim of the new plan is largely to boost domestic consumption. The Chinese are now among the biggest consumers of luxury products globally, however millions of domestic consumers travel to Hong Kong and Europe to avoid taxes on luxury products on the Mainland that can be as high as 60 percent.

Some stores in Paris see up to 30 percent of their sales come from the Chinese, according to Yuval Atsmon, a Shanghai-based analyst with McKinsey & Co. “So this could indeed shift consumption location,” he said.

The country’s upper classes, defined by McKinsey as households with between 100,000 yuan to 200,000 yuan (roughly $15,000 to $30,000) could be impacted the most. Such households are expected to grow from 12 million today to 72 million by 2015. On average, consumers in this group already spend between 14 and 40 percent of their income on luxury products.

October is the beginning of China’s National Holiday, a weeklong break during which many Chinese go shopping to take advantage of sales. Officials hope that by introducing the tax changes to consumers before then it will spur more people to stay at home rather than travel overseas to spend during other upcoming holidays, like Chinese New Year.

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