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.  

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