Interpac Business and Migration Solutions Melbourne Australia

(December 13, 2011)

THE debate over whether Chinese people are the highest taxed in the world has been reignited after official data showed tax revenue increasing nearly three times faster than economic growth this year.

While some economists argue that improvements in the tax structure and use of tax revenue could ease the burden, others are proposing tax cuts.

On Sunday, the Ministry of Finance said total income from tax in the first 11 months of the year rose 24.7 percent to 8.52 trillion yuan (US$1.35 trillion) from a year earlier, but stressed that the pace of growth in tax had been slowing from September due to a number of reasons including slower economic growth and the raising of individual income tax thresholds.

The figure compared with a 9.4 percent annual growth in gross domestic product achieved in the first three quarters, according to the latest available data from the National Bureau of Statistics. China's economic growth for the whole year is estimated by authorities at around 9.2 percent.

Outdated system

However, Gao Peiyong, a professor from the Chinese Academy of Social Sciences, told Xinhua news agency yesterday that the tax burden in China was lower than that in other industrialized countries, and the reason why people were feeling they were paying too much tax was because of an outdated tax system and a failure of the government to provide high quality public services.

"Considering the broadest concept of tax, which includes income from government funds, state-owned assets and social insurance funds, the macro tax burden is lower than the average level of industrialized countries," he said. "But the public services the government provides are far behind public expectations."

He also noted that people felt they were paying too much because 70 percent of tax in China was paid by consumers, while in some industrialized countries, the proportion was just 30 percent.

"China should improve the tax system by reducing the amount of indirect taxes and increasing income tax and property taxes," he said. "This will weaken the link between tax and consumer prices."

Pilot program

China made a number of changes to the tax system this year, including a cut in income tax for individuals on low and medium incomes, a rise in the threshold of corporate business and value-added taxes, and a pilot program to replace business tax with VAT for some service companies in Shanghai from next year.

Some economists say the government should cut taxes to meet the trend of developed countries.

"China's overall tax burden is generally high if no tax incentives are applied," said Marcellus Wong, a Hong Kong-based tax partner of PricewaterhouseCoopers.

"There is a trend of reducing taxes in other industrialized countries in the past six years to make their tax regimes more competitive. China should seriously consider the same."

Shi Zhengwen, a professor with China University of Political Science and Law, said China should lower its statutory tax rates in addition to structural reform.

"Lower tax rates, a wider tax base and tight regulation are focuses of the current tax system reform," Shi said.

"But without lower tax rates, the structural tax cut policies will not be effective," he said.

Source from Shanghaidaily.com