Chinese mainland's tax burden exaggerated 

(People's Daily Overseas Edition)

17:02, September 02, 2011

Edited and Translated by People's Daily Online

The Chinese mainland has ranked second again on the "Tax Misery and Reform Index," which was recently released by Forbes Magazine. China ranked second for the first time in 2009. Tax problems such as the “tax levied on the allocation of moon cakes by employers to employees as corporate benefits" have caused public discussions on China's tax system. 

"Although China has been ranked among several countries with the world's highest level of tax burden, the level of China's tax burden is virtually much lower and has obviously been exaggerated," said Yang Tao, vice director of the Monetary Theory and Policy Office of the Institute of Finance and Banking under the Chinese Academy of Social Sciences. He added, "China's current tax rates are not very high."

Yang said that Forbes's "Misery and Reform Index" has obviously involved subjective judgment because it calculated the tax burden based on the stationary tax rates of various countries without taking into account the difference in the tax structure of various countries, which means it failed to accurately reflect each country's actual tax burden. 

However, Sun Yudong, a professor from the School of Public Administration and Policy under the Renmin University of China, said that although the Tax Misery Index is not quite accurate, it still has some value for use as a reference in China's taxation reform. 

He believes that, viewing it longitudinally, China's macro-tax burden is still relatively high mainly because the maximum marginal tax rates of China's main tax items are relatively high, and China’s statutory tax rates are also not low compared to developed countries' corresponding tax items. 

For example, the maximum marginal tax rate of China's individual income tax is 45 percent, but it is 40 percent in the United Kingdom., 37 percent in Japan, 35 percent in the United States and 13 percent in Russia. In addition to main tax items, China also collects the consumption tax and other local taxes, making China's macro-tax burden seemingly relatively very high. 

According to Yang, citizens of China feel the tax burden is heavy because they are also affected by government revenue taxes in addition to the individual tax and enterprise income tax. For example, government revenue taxes, such as the land-transferal fees and capital income of state-owned enterprises, are all quite high. Meanwhile, the financial expenditures that are invested in social security facilities, such as the social welfare and public service are still not sufficient, leading to the misunderstanding of China's tax burden. 
China to continue tax reform 

"In fact, personal income tax only makes up a small portion of China's total tax revenue. Corporate taxes are the main sources of the tax revenues of most countries, and Chinese enterprises may bear a relatively high tax burden," said Xu Xiaonian, a professor of economics and finance at China Europe International Business School, adding that companies often pass their own tax burdens on to end consumers by raising the prices of their products. 

Jia Kang, director of the Institute of Fiscal Science under the Chinese Ministry of Finance, said that China's taxation system has been relying too much on indirect taxes, which has caused many problems. Due to the unsound taxation system, the share of government revenue in national income has risen at a relatively fast pace, and domestic consumption has been affected as low-income groups bear an overly heavy tax burden. 

However, as several amendments to China's Individual Income Tax Law took effect starting Sept. 1, the country is accelerating reform of its taxation system and gradually cutting the direct tax burden on mid- and low-income families. According to the "Opinions on Accelerating Public Finance Management in Accordance with the Law" recently released by the Ministry of Finance, China will continue to promote tax reform and improve tax legislation in order to build a sound taxation system.

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