More tax reforms on agenda: Minister

Finance Minister Lou Jiwei leaves the podium after a news conference on the sidelines of the annual session of the National People's Congress in Beijing on Thursday. Wang Jing / China Daily

China will bring more legitimacy and fairness to its taxation system in a bid to ensure the nation's economic health, Finance Minister Lou Jiwei said on Thursday.[Special coverage]

Expanding pilot reform to replace the business tax with a value-added tax, in order to avoid duplicate taxation and to encourage industrial upgrading, will remain a major task this year, Lou told reporters on the sidelines of the annual session of the National People's Congress in Beijing.

The trial, which started with transport and the service sectors, grew to include railway, post and telecom services in January, according to the Government Work Report delivered by Premier Li Keqiang on Wednesday.

Legislation for an environmental tax and property tax also is on the agenda, Lou said, while revealing that authorities also are considering modifying the resources tax and consumption tax.

Apart from highlighting the need for legislative approval of any new modifications to the tax system, Lou said tax regulations will gradually be converted into new laws.

Only three of the current 18 tax items in China were passed by legislation, while the rest are regulations set by the State Council, China's Cabinet, which was granted that authority by the National People's Congress in 1985.

"This has caused irregularities in our taxation system, such as unapproved tax incentives offered by local governments," Lou said.

He said the central government will step up efforts to remove these tax incentives. "We must ensure that resources are allocated according to the market, not preferential policies," he said.

Bai Chongen, deputy director of the Economic Management School at Tsinghua University, said although tax legislation will be a lengthy process compared with State Council regulations, it also is inevitable.

"There is no shortcut on the road to reform," he said.

China's macro tax burden as measured by the public revenue-to-GDP ratio was 22.7 percent in 2013. Many are expecting that the promised tax reforms may ease the tax pressure, but they might be disappointed.

Yang Zhiyong, head of fiscal science research at the Chinese Academy of Social Sciences, said the impact of such things as VAT reform on companies will differ according to the company.

"The aim of VAT reform is not to increase the overall tax burden," Yang said.

As for consumption tax, Jia Kang, head of the Institute for Fiscal Science Research under the Ministry of Finance, said the reform aims to boost revenue for local governments and encourage local officials to think more about stimulating consumption than attracting investment.

Reforming the resources tax, Jia said, will involve assessing resources such as coal on a value base rather than volume base, which may raise the amount of taxation.

At the press conference, Lou ruled out the possibility of raising the threshold for personal income tax. It now stands at 3,500 yuan ($570) a month, but he said there will be a comprehensive plan for tax deductions taking into account family living expenses.

Lou also hinted that certain flawed tax policies, such as the 20 percent income tax levied on a family's property sales, which has driven up the number of divorce cases for the purpose of tax avoidance, should be modified or canceled.

Regarding overall economic growth goals set for this year, Lou called for a more comprehensive understanding of the target instead of just fixating on the 7.5 percent figure.

The premier announced on Wednesday that the country will target an unchanged 7.5 percent GDP growth for 2014, while vowing to keep inflation at around 3.5 percent and create 10 million more urban jobs to ensure the registered urban unemployment rate does not rise above 4.6 percent.

Noting that the report used "around" for those targets, Lou said a 7.3 percent or 7.2 percent growth rate can still be considered within that range.

GDP growth, inflation and employment all are key factors that should be taken into account when assessing economic conditions, Lou said.

"Whether the final reading is a touch more or less than the 7.5 percent target is not that important. Employment is the key," he added.