In response to the anticipated consumption tax readjustment, the price of imported luxury cars in Shanghai has risen by 150,000 yuan (about 18,500 U.S. dollars), sales of high-end watches have soared in western Chongqing municipality and wooden floors were in short supply in eastern Nanjing City.

According to the circular issued mid-March by both the Ministry of Finance and the State Taxation Administration, an adjustment in consumption tax will start from April 1 across China.

This will be the country's first consumption tax adjustment for 12 years.

As of April 1, consumption tax will be collected for luxury goods including yachts, golf balls and clubs and high-end watches as well as for wooden disposable chopsticks and wooden flooring. The tax will be scrapped for shampoo, hair conditioners and skin moisturizers to cater for low and medium income earners. Meanwhile, more oil products will be subject to the consumption-link taxation.

Observers have said these arrangements signify the central government's resolve to, through taxation, reasonably guide consumption, indirectly improve income distribution and promote environmental protection and efficient use of resources.

The upcoming taxation will substantially affect prices of golf balls and clubs, luxury cars and watches and yachts, the observers noted.

In Shanghai, the BMW X5 has been priced at 1.3 million yuan (approximately 160,300 U.S. dollars), up from 1.15 million yuan (some 141,800 U.S. dollars); and the price of Benz S500 has also risen from 1.15 million yuan to 1.3 million yuan.

Ma Shaodi, a Chongqing businessman selling products for the Switzerland-based Swatch, forecasts that retail prices of prestigious watches are likely to increase by 10 percent.

"Tax of luxury goods indicates the Government's attitude towards luxury goods consumption, particularly competition among the rich to keep up with the Joneses," said Dr. Li Jian, an economist with the Shanghai Academy of Social Sciences.

Ni Hongri, another economist from the State Development Research Center, a government think tank, noted, "Under the current reform of personal income tax, levying a higher consumption tax on high-income earners is conducive to increasing the revenue in state coffers and to industrial restructuring as well."

A five percent tax rate will be phased in for wooden disposable chopsticks and wooden floors, aimed at enhancing consumers' awareness of environmental protection and at conserving timber resources.

Lu Weiguang, president of Shanghai Anxin Flooring Co., Ltd., predicted the price of wooden flooring will rise 10-15 yuan (1.23-1.85 U.S. dollars) per square meter, and the price hike will divert consumers to other products.

In the tax adjustment campaign, common shampoos, hair conditioners and skin moisturizers, which used to be taken as luxury goods, will be the only category for which consumption tax will be scrapped.

"Cut-throat competition in daily-used consumer goods has squeezed the room for manufacturers to make profits. However, the new taxation policy is based on efforts to safeguard interests of the ordinary consumers," commented officials with the China Association of Daily-used Chemicals Industry.