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China to Speed up Tax Reform

iconDec 22, 2010 10:09
Source:SMM

BEIJING, Dec. 22 -- China's tax reforms could soon gather speed, as officials and experts vowed to accelerate "structural" tax reductions to ensure a fairer system during the coming five years.

The government is expected to cut individual income tax for low- to middle-income groups, in addition expanding the range of value-added taxes and decreasing sales duties in the service sector.

Meanwhile, policymakers may increase pilot programs for resource taxes and launch property taxes in selected cities soon, analysts said.

"To reform individual income tax will be difficult, but the government should propose suitable amendments in the 12th Five-Year Plan (2011-2015)," Jia Kang, director of the Institute of Fiscal Science Research under the Ministry of Finance, said at a forum over the weekend.

The purpose of individual income tax reform should be to ease the financial pressure on low- to middle-income groups, and to increase the rate for those on higher incomes, Jia said.

He suggested the tax department should collect families' income information by improving statistics databases, and should also adjust tax rates according to current economic performance, taking into account factors such as the increasing inflation level and rising gross domestic product.

Inflation hit a 28-month high of 5.1 percent year-on-year in November, according to data from the National Bureau of Statistics. It was 2.6 percentage points higher than the current benchmark one-year savings rate of 2.5 percent, resulting in a "negative interest rate" for the fastest-growing major global economy.

Figures from the Ministry of Finance showed that the middle-income band, with a monthly income of between 8,000 yuan ($1,198) and 20,000 yuan, has become a main pillar of revenue collection as taxpayers in the group contributed 22 percent of total individual income tax.

Jia said companies would benefit from a reduction in the sales tax and an expansion of the range of value-added taxes in the service sector. These moves would lower their tax expenses and facilitate the development of tertiary industries.

For example, if a value-added tax replaced the sales tax, companies would not be required to pay duty on real estate expenses, such as factory construction. That would allow them to shift capital into research and development, and enable faster growth.

During the next five years, China should give local governments the power to adjust the tax system to ensure that their fiscal revenues are adequate to allow them to perform their administrative responsibilities, said Jia.

The government has been widening local tax channels, such as those on resources and property, he said.

"Resource and property taxes may become the pillars of local tax systems. The fiscal revenues in western China will mainly come from the resource tax, while the central and eastern regions may depend on the property tax," according to Jia.

Jia also advocated the adoption of a carbon tax. "Companies can pay 10 yuan for one ton of carbon emissions, and the rate should not be too high at the beginning." However, it will be harder to instigate an inheritance tax during the coming five years, according to Jia.

 

China macro economy
Macro control policy
tax reform

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