Bloomberg

(Bloomberg) -- China’s Finance Ministry has submitted a consumer tax overhaul proposal to the State Council, according to two people familiar with the matter who asked not to be identified because the discussions are private.

The proposal is subject to change after other ministries and the State Council, China’s cabinet, give their input, one of the people said. Finance Ministry officials broadly support tax cuts on less expensive cosmetics and toiletries, and the discussions include raising alcohol and tobacco taxes, one person said.

The measure would be another step toward a broader tax code overhaul following reforms of the value-added tax in May that will ease corporate payments. Changes are needed to keep up with shifting consumption trends as products once seen as luxury goods are now every day items for China’s rapidly expanding middle class.

Such an overhaul may have wide-ranging implications, from spurring budget-conscious smokers to kick the habit or making it less desirable to take a trip to South Korea to load up on beauty products.

The Finance Ministry didn’t immediately respond to a faxed request for comment Tuesday.

Giving a greater share of consumer tax revenue to provincial governments instead of the central government is also being debated at the State Council, one of the people said. Another measure being discussed is whether to levy taxes on energy-related products such as charcoal used for heating, according to one of the people.

The central government mandates and collects taxes nationwide on consumer goods, which brought in revenue of 1.1 trillion yuan ($165 billion) last year, Finance Ministry data show. Most consumer goods are exempt from the tax, which applies to products including cosmetics, alcohol, tobacco, jewelry and fireworks sold by retailers and wholesalers.

The State Council weighs such proposals and seeks input from other ministries before deciding whether to proceed with a plan or send it back for modification.

To contact Bloomberg News staff for this story: Yinan Zhao in Beijing at yzhao300@bloomberg.net. To contact the editors responsible for this story: Malcolm Scott at mscott23@bloomberg.net, Jeff Kearns

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