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Debates to centre upon tax reforms
By Xu Binglan (China Daily)
Updated: 2005-03-09 02:18
Finance Minister Jin Renqing and the nation's taxation chief Xie Xuren should
expect to be deluged with questions on reforming China's taxation system when
they go before a press conference set for this afternoon.
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| Finance Minister Jin Renqing delivers a report at the plenary
meeting of the NPC. [Newsphoto] | The
questions will represent a continuation of a nationwide debate on the reforms
that have gone on for years. The debate has grown louder in 2004 when financial
authorities pushed hard for the adoption of a unified corporate income tax,
which would mean higher rates for foreign-funded enterprises.
The debate did not generate results last year.
So it is just natural that tax reform is among the hottest of topics during
the ongoing session of the National People's Congress (NPC) and the Chinese
People's Political Consultative Conference (CPPCC).
Dozens of formal proposals and speeches have been centring on the topic. In
addition to reforming the corporate income tax system, NPC deputies and CPPCC
members have urged a more just personal tax system to be established, along with
the enactment of a Taxation Code, in effect a basic law for taxation.
China's tax collectors now follow the 1991 Foreign-funded Enterprise and
Foreign Enterprise Corporate Income Law, which stipulates a 15 per cent rate for
such firms, and the 1993 Provisional Rules on Corporate Income Tax, which set a
33 per cent rate for enterprises funded wholly by domestic investors.
"The difference unfairly put domestic enterprises at a disadvantageous
position in competing with foreign peers," said Xu Yulin, a CPPCC member and
deputy director of the State Council's Legal Office.
In addition, tax experts said in an era when tax reductions are the trend,
the 33 per cent should also be cut.
Xu said relevant departments have drafted a plan for unifying policy, with a
single rate of around 25 per cent. That rate is at the middle-range among rates
adopted by other countries.
The plan also proposes a transition period of between two or three years to
help foreign-funded firms adjust to the new taxation level.
However, the plan has met with strong opposition from those who say a unified
rate will dampen foreign investment growth. They worry that China will become
less competitive when many Asian neighbours are trying harder to attract
overseas investors.
David Dollar, director of the World Bank's China Programme, said the
opponents' argument is not valid.
It is necessary and understandable to have preferential tax rate for foreign
companies when market conditions are not very competitive, he said.
But the preferential rate for foreign companies has increasingly become
inappropriate as China's investment climate has substantially improved.
"Increasingly it (the dual corporate income tax system) does not make sense,"
he said.
Taxation is not very important when attracting investors, who now pay more
attention to the overall investment environment, which include infrastructure
and government efficiency, he said.
Compared to neighbouring countries, China looks pretty good in this regard,
he said.
Meanwhile, the focus of the public's debate is on the 800 yuan (US$96)
threshold for personal income tax payments.
It was set in 1980, when the current Personal Income Tax Law was promulgated.
The economic situation is enormously different today than two decades ago. So
all agree the threshold should be raised.
However, experts say reforming personal income taxes should include far more
than raising that level.
What is more important is a better collection system and to have more
deduction designs for such people as the disabled and those who fianncially
support others to make the system promote social justice.
Personal tax collection now relied heavily on companies and institutions that
have property accounting systems. Their treasury staff is commissioned to
collect taxes.
But those who obtain part of their income from other channels in many cases
high-income earners can cheat the system by avoiding taxes due.
"So we really need a system that can trace personal incomes," said Yang
Zhigang, a senior fiscal science researcher at the Chinese Academy of Social
Sciences.
Yang also said the country needs a basic law for taxation to clearly state
the key principles in the sector.
Yang also said tax reforms should be carried when China's
tax revenues grow rapidly because that will make the reforms easier to complete.
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