Zhang Peisen, a senior researcher with the State Administration
of Taxation's Taxation Research Institute, said tax system reform
will continue, even though the plan helps to reduce taxpayers'
burden and adds fuel to the economy.
"The overall situation of China's economy is fine," Zhang said.
Overheating is only found in some industries, such as autos, steel
and cement, and this is temporary.
A series of macro-control measures implemented by the government
have begun to take effect, Zhang said. Economic data released so
far for May show factory output and money supply rising at the
slowest annual pace in months.
Ni Hongri, a senior researcher with the State Council's
Development Research Center, agreed that overheating in selected
industries should not be an obstacle to the reform plan.
"The government should first carry out the value-added tax
system reform experiment in northeast China," she said. The tax
plan aims to attract companies to invest in Jilin, Liaoning and
Heilongjiang provinces to revive the old industrial bases.
China currently has a production-based value-added tax system
under which fixed assets are classified as consumer goods and are
subject to the tax.
Companies cannot claim tax deductions for the purchase of fixed
assets such as equipment and machinery. The system places a heavy
burden on enterprises wanting to increase their fixed asset
investment, especially for capital- and technology-intensive
enterprises.
The government has decided to adopt a consumption-based system
instead, which allows companies to deduct such tax when acquiring
new machinery and equipment.
Director Xie Xuren of the State Administration of Taxation said
late last year that the government would implement a
consumption-based value-added tax system in eight industries in
northeast China from this year. Based on the experience gained from
the experiment, the government will implement the system across the
country at a later date.
According to Zhang, the value-added tax reform plan will likely
be carried out sometime later this year.
The experts suggested that the government should also make full
preparations for enterprise income tax and personal income tax
reforms.
Since China has become a member of the World Trade Organization,
it should unify enterprise income tax policies, Zhang said.
The country is now practicing dual-track enterprise income tax
policies for domestic and foreign-funded companies. The income tax
rate for domestic companies is 33 percent, while that for
foreign-funded companies is 17.
"The country should implement unified, nationwide treatment for
domestic and foreign-funded companies because they should compete
on an equal footing," Zhang said.
In recent years, personal income tax has become a hot topic. The
threshold for taxation is 800 yuan (US$96), which is considered
low. Personal income tax rates vary across 11 categories based on
income sources, and the system has little control over an
individual's total annual income.
Taxation is aimed at people with high incomes to promote
economic development and social stability.
As a result, the current 800-yuan (US$96) starting point for
taxation on monthly income needs to be raised, Zhang said. Personal
income tax should also be based on the combination of various means
of income, including bonuses and dividends, instead of salaries
alone.
The personal circumstances of an individual, such as whether or
not they are supporting children and the elderly, should also be
considered before tax is calculated.
(China Daily June 18, 2004)