By Li Hongmei

China plans to overhaul its tax system in the second half of this year, including levying consumption taxes on luxury goods and imposing value-added taxes on an increasing number of sectors that used to pay only basic taxes.

Lou Jiwei, China's finance minister, announced on Thursday a series of tax reform measures which include levying consumption taxes on some high-end consumer goods and merchandise that either causes serious pollution or substantially wastes resources during production, according to the Xinhua news agency.

Officials are also planning to introduce a new program which puts value-added tax on more sectors of the economy instead of previously paying a simple business tax, Lou stated. The pilot program, which kicked off on Aug. 1, first targeted the transportation industry and certain players in the service sector. China is now looking to expand the program to include postal services and telecommunication service suppliers.

Bai Jingming, deputy head of the Fiscal Science Research Institute under the Ministry of Finance, described the decision to expand the pilot program as a breakthrough in China's attempt to overhaul its taxation system.

Commenting on the plan to impose consumption taxes on luxury goods, Zhang Bin, a taxation expert with the Chinese Academy of Social Sciences, said the initiative would lead to a fairer distribution of income and more rational consumer behavior. Zhang also advised the government to impose consumption taxes on high-end recreational activities.

However, some in the luxury goods business also suggested a possible price hike and additional cost burden on consumers in light of the proposed new taxes, ant it is possible that people would buy luxury goods abroad instead of in China on an even larger scale.