Owners of yachts - a luxury that is gaining popularity among China's newly rich - will have to pay an annual vessel tax based on the length of their craft if a draft law is passed by the top legislature.

The latest draft of the vehicles and vessels taxation law was submitted to the National People's Congress (NPC) Standing Committee for second reading on Wednesday.

"Based on the principle of taxation determined by law, a user tax for yachts has been included in the latest draft and will be collected according to a vessel's length," said Zhang Bailin, vice-chairman of the NPC Law Committee, who explained the draft to legislators.

He said the tax on yachts will range from 400 yuan ($61) to 2,000 yuan per meter. The rate of taxation will depend on the specific model of yacht and will be further stipulated by the State Council.

Zhang also stressed the necessity of the legislation, saying it improves the taxation system because the current tax on vehicles and vessels has been collected in accordance with a provisional regulation issued by the State Council in 2007.

He Yicheng, a Macao-based businessman and member of the NPC Standing Committee, said on Wednesday during a group discussion that the tax on yachts may need to be higher if it is to have the desired effect of narrowing the gap between rich and poor.

"As high-end consumer goods, yachts are different from normal transportation tools and should be distinguished accordingly through the tax," he said.

"The tax on a 10-meter yacht is lower than that of a vehicle with an engine larger than 4.0 liters, which is unreasonable."

However, the draft has triggered concern among yacht dealers, who describe it as "snow plus frost" on the fledgling industry.

Liu Dianfang, chairman of the yacht industry association in Xiamen, in East China's Fujian province, said the draft law, if passed, will hold back the momentum of the fast-growing yacht industry in China.

Liu estimated there are 300 luxury yachts in China that each has a value of 3 million yuan or more. Xiamen, because of its proximity to Taiwan, harbors about 40 luxury yachts and has 11 yacht clubs out of the 23 throughout China.

"The new tax on yacht owners will discourage potential customers and hurt the market," Liu said, adding that the law should also offer a clear definition of a "yacht".

He said the definition is needed because, if a private fishing boat that is 4 or 5 meters that cost 20,000 to 30,000 yuan is considered a "yacht", the tax will be a heavy financial burden on its owners because they will need to pay 1,600 to 2,000 yuan in taxes each year.

Liu's concerns were echoed by the finance manager at a leading yacht importer based in Xiamen.

"We're already heavily taxed with high import duties and a consumption tax adding up to 43 percent," said the woman surnamed Ni. "We pay 2 to 3 million yuan for smaller yachts and 20 to 30 million for larger ones.

"It's a burgeoning market that is attracting more Chinese customers. We hope the government will give it more support and imposing a new tax will not serve that purpose."

Compared with the first draft, the latest draft law also lowers the tax on vehicles that have an engine capacity of between 1.0 and 2.0 liters, in response to public opinion that the proposed tax rate in the first draft was too high.

At its first reading by the top legislature in October last year, the draft proposed raising taxes on energy-intensive and highly-polluting cars and vessels, but this proposal was also cut from the latest draft.