Experts tussle over need for mainland tax reform

(Ecns.cn)--An ordinary wage earner in China pays as much as 1 million yuan in taxes during his or her lifetime, revealed the Southern Weekly on Thursday.

The newspaper calculated that a Chinese person with a 150,000-yuan annual salary would pay roughly 520,000 yuan in personal income taxes and over 250,000 yuan in consumption taxes from the time he or she is 25 to 60 years old. If this person spends 1.5 million yuan on a house and 200,000 yuan on a private car, he/she will pay 170,000 yuan and 80,000 yuan respectively in taxes for each item.

The 2009 Tax Misery and Reform Index—a table measuring the harshness of a country's tax regime released by Forbes Magazine—ranked citizens on the Chinese mainland as having the heaviest tax burden in the Asia-Pacific region. Yet Hong Kong, by comparison, was considered the kindest in regard to taxation, reported China Daily.

Although a new law to raise the threshold of China's income tax took effect last September, freeing 64 million people from being taxed, the amendment was widely seen as having little effect on lightening the overall tax burden.

Personal income tax revenue dropped 5.5 percent year-on-year in the last quarter of 2011, but personal income tax revenue for the whole year registered a growth of 25.2 percent from the previous year, revealed China Daily.

At this, the Ministry of Finance (MOF) attributed the continued growth to rising residential incomes, the ministry's efforts to enhance tax collection and the blossoming capital and art markets, which fueled property transfer tax income.

According to Zhu Qing, a finance professor at Renmin University, "China is in no way among the heaviest taxed countries in the world."

The People's Daily cited Zhu, saying that the figures Forbes used to reach its conclusions were "unreasonable and not scientific," since they focused on the maximum individual tax rate of 45 percent, "a rate that applied to fewer than 0.2 percent of taxpayers on the mainland."

He also estimated that China's tax burden as a percentage of GDP was around 21.9 percent in 2010, which was lower than an average of 34.8 percent among 30 countries covered by the Organization for Economic Cooperation and Development (OECD) in 2008.

However, Zhu was quickly rebuffed by Zhou Jiangong, editor-in-chief of Forbes' Chinese edition, insisting that the survey was conducted fairly, reported China Daily.

"To calculate the index according to the highest marginal percentage in each locale is to establish a measurement by which the tax burdens of different countries or regions can be compared," explained Zhou.

Companies have also been complaining about paying too much in taxes.

Statistics from the MOF show that China's tax revenues surged 22.6 percent year-on-year to 8.97 trillion yuan in 2011.

Production-related taxes rose the most last year. Receipts from value-added taxes and turnover taxes grew 15 percent to 2.43 trillion yuan and 22.6 percent to 1.37 trillion yuan, respectively, in 2011, remaining unchanged from one year earlier.

Meanwhile, revenues from corporate income taxes surged 30.5 percent year-on-year to 1.68 trillion yuan, up from 11.3 percent last year, accounting for 18.7 percent of the country's total tax revenues.

Li Dongsheng, board chairman of TCL, a multinational electronics company headquartered in Huizhou, Guangdong Province, revealed that the company pocketed a net profit of 1.7 billion yuan, but paid 4.2 billion yuan in taxes and administrative charges.

In addition to high tax rates, double taxation is also partially to blame for the phenomenon, pointed out the Southern Weekly.

The newspaper referred to the example of an integrated circuit manufacturer, which must pay 255,000 yuan in value-added tax on 1.5 million yuan of revenue. But if part of its products—which in this case are worth 600,000 yuan—are made by a contractor, the contractor has to pay 30,000 yuan in tax according to law, and the total tax paid to the government amounts to 285,000 yuan.

Further division of labor has resulted in heavier taxes, which goes against the structure of modernized enterprises, commented the Southern Weekly, adding that the problem has already gotten attention from the government and scholars.

Finance Minister Xie Xuren noted that thresholds for value-added taxes and turnover taxes will also be raised this year.

Zheng Xinye, a professor at the School of Economics at Renmin University of China, told the Global Times that the central government should reduce the taxes levied on companies that cause less pollution, and should levy resource taxes and windfall taxes in a bid to modify the country's tax collection structure.

Zheng also suggested reducing value-added tax rates for ordinary products like foodstuffs and edible oil.