As recently as 2005 the Chinese government, in an attempt to close the disparity between the rich and poor, sought to increase the tax on luxury goods and to minimise the environmental impact caused by consumption. We complain greatly about the levels of VAT in Europe, but the market for yachts in China has for some time faced significant fiscal pressure. Buyers of yachts have had to face 10 per cent consumption tax plus 17 per cent VAT plus a 24 per cent luxury goods tax.
On 25 February this year the National People’s Congress (NPC) of the People’s Republic of China passed the Vehicle and Vessel Tax Law. It will become law on 1 January 2012. Prior to the enactment of this legislation, China’s 199 million cars, trucks, fishing boats and yachts were subjected only to a provisional regulation on vehicle and vessel tax last revised by the State Council in 2007. The new law introduces, for the first time, a specific tax on yacht owners in China.
The official aim of this legislation, as reported by the NPC, is to standardise taxation and promote environmental awareness and energy efficiency across all private modes of transport. This is in line with the State Council’s statement published with the draft legislation in October last year. When the draft law was circulated for public consultation, China’s top legislators, in one month, received nearly 100,000 suggestions. Surprisingly, only half the respondents asked for the reduction of the tax burden.
Macau-based businessman He Yicheng, who is a member of the NPC standing committee, said that this tax on yachts would need to be higher if it were to achieve its aim of narrowing the gap between rich and poor.
Although progressive taxation is now a common theme in China, the possible effectiveness of the Vehicle and Vessel Tax Law as an incomegap reducing policy is questionable. Although the number of superyacht owners in China is on the increase, the percentage as against global ownership remains modest and any tax revenue collected from superyacht owners can, therefore, hardly be significant in terms of redistribution of wealth.
The Vehicle and Vessel Tax Law will impose an annual yacht tax related to the yacht’s length. Although the NPC standing committee did consider other tax-assessment factors such as the price of the yacht, size of engine, emissions-efficiency and tonnage, it decided to use length as the standard on the assumption that there was a straight line correlation between all these factors and its length.
It is expected that the law will stipulate an annual yacht tax ranging from 400 yuan (£56) to 2,000 yuan per metre. The detailed classification of taxable yachts and corresponding taxes due will be regulated by a yet-to-be published order from the State Council.
The China Daily quoted a finance manager at a leading yacht importer as saying, ‘We’re already heavily taxed with high import duties and a consumption tax adding up to 43 per cent. We pay two to three million yuan for smaller yachts and 20 to 30 million yuan for larger ones.’ He worried the tax could discourage potential yacht customers and hurt the fledgling market.
Although the new legislation has been passed, the actual provisions have yet to be made public. As of now, it is not known if either the Vehicle and Vessel Tax Law or the corresponding State Council regulation will deem motor-powered luxury cruisers as ‘yachts’ under law – yachts have traditionally been understood to be sailing rather than motorised vessels. Therefore, if neither the legislation nor the State Council regulation contains provisions on this matter, the legal definition of a ‘yacht’ will remain ambiguous, generating confusion among future purchasers of superyachts in China.