Debate rages over taxation in China

(Shanghai Daily)

08:15, September 20, 2011

Are people living on the Chinese mainland some of the highest taxed people in the world? Debate has been raging online after the Ministry of Finance said recently that fiscal revenue, 80 percent of it from tax, had risen by more than 30 percent in the first eight months of this year. 

Many online posters recalled a 2009 Forbes Magazine survey which declared the Chinese mainland to have the second harshest tax regime in the world after France. 

Forbes' Tax Misery & Reform Index gave it a "misery" score of 159, seven points higher than the year before after higher employer and employee social security taxes were imposed amid the global economic downturn. 

France, scoring 167.9, was the only country to take more tax from its citizens, according to Forbes. 

The 1.3 billion people on the Chinese mainland shared the heaviest tax burden in Asia-Pacific while Hong Kong was considered the kindest tax regime in the region with a score of just 41.5, Forbes said.

But the view that the Chinese mainland's tax regime is tough is not shared by all. 

"China is in no way among the heaviest taxed countries in the world," Zhu Qing, a finance professor with Remin University of China, told yesterday's People's Daily.

He said the figures Forbes used to reach its conclusion in 2009 were "not scientific and unreasonable" as it had picked the highest rate from each tax category.

"For instance, it picks up personal income tax rate of 45 percent in the list, which is the maximum marginal tax rate of individual tax in China," Zhu told the newspaper. "This rate only applies to less than 0.2 percent of taxpayers on the mainland" 

He estimated that China's tax as a percentage of gross domestic product was around 21.9 percent last year, which was lower than an average of 34.8 percent among 30 countries covered by the Organization for Economic Cooperation and Development in 2008.

The fiscal revenue announcement drew many angry comments online from citizens who had to pay tax on mooncakes they received from their employers for the recent Mid-Autumn Festival.

The Ministry of Finance said on its website that fiscal revenue in the first eight months rose 30.9 percent year-on-year to more than 7.43 trillion yuan (US$1.16 trillion). That is almost 83 percent of the about 8.9 trillion yuan the central government aims to collect for the whole year.

For the whole year, the tax income is bound to surpass 10 trillion yuan, analysts said, growing at a pace well above the 8 percent annual target the finance ministry set for the year.

Annual income for city residents in the mainland was at 21,033 yuan last year while that for rural residents was at 5,919 yuan. 

"Figures don't speak for anything" was a comment on Sina.com. "It's the taxpayers that can say whether they are feeling the pinch or not."

Others argued that the reason Chinese feel tax is too much is because the incomes of ordinary Chinese are too low.

A report by the World Bank previously said an ideal tax burden rate is around 23 percent for countries whose per capita GDP is above US$2,000. For per capita GDP above US$10,000, the ideal rate is at 30 percent.

China's per capita GDP last year was ranked 94th in the world at -less than US$4,382, according to the International Monetary Fund.

A report by Central University of Finance and Economics pointed out that how the government uses taxpayers' money is one of the reasons for people's complaints with many feeling they are not getting sufficient return for their taxes. Money spent on social security welfare was 7.6 percent of GDP in 2009 with 2.7 percent on medical services and 4.52 percent on education, the report said.

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