These kinds of watches usually cost tens of thousand of yuan, or sometimes as
much as several million. This is why the new tax will be imposed, the official
says.
A former public relations officer with LVMH Group's watch and jewellery
division says the new tax has not come as a surprise, because rumours have been
circulating around the industry since last year.
"This is completely within our expectations," she says.
Niche brand BREITLING says the tax change will simply encourage more mainland
customers to shop in Hong Kong. Shirley Ng, marketing manager of BREITLING's
Hong Kong and Mainland Division, says average watch prices in Hong Kong only
account for 70 per cent of the prices on the mainland, and the tax difference is
the reason.
"With the 20 per cent consumption tax, Hong Kong will continue to have the
upper hand," she says.
Experts believe the tax will definitely have an impact on the mainland watch
market.
Kang Weikai, managing editor of Trendstime, tells China Business Weekly that
the tax increase will cause problems for companies that are still trying to
establish their brands and stores. He also explains that very few international
brands, such as Longines and Rolex, actually profit from their China operations.
"It is unavoidable that sales revenues of luxury watches will drop, so it
will take longer for those brands to actually make money. The new reality will
definitely be tougher for them," Kang says.
But he also notes that the tax is only targeted at expensive watches. Some
brands, such as Longines, will not be as strongly affected by the tax increase
because their average prices fall under the government price threshold.
Last July, the General Administration of Customs also declared that consumers
will be taxed on items purchased outside the mainland if they exceed 5,000 yuan
(US$622.67), but many mainland travellers have managed to dodge this tax by
wearing their new watches when passing through customs.
(For more biz stories, please visit Industry Updates)