China’s National Audit Office (CNAO) released its fourth report
for 2004 on September 16. The report estimates tax losses at 25
billion yuan (US$3 billion). But, Li Jinhua, auditor-general with
the CNAO, revealed in a TV interview that the situation is, in
fact, much worse than has been reported in the media.
The report cites four key causes for the deficit: manipulation
of taxation schedules and plans; false or erroneous declarations in
a bid to avoid or evade tax; irregular practices by local
governments; and ineffective tax collection.
Ni Hongri, a researcher at the State Council’s Development
Research Center, said: “Although the problems revealed in the
report have already existed, this report is the first of its kind.
The problems involve mainly the taxation system, budget systems or
rules applicable to local governments, and China’s legal
environment.”
He Zhenyi, a researcher with the Chinese Academy of Social
Sciences, echoed Ni’s comments, highlighting the country’s
inappropriate or flawed taxation system as the fundamental cause of
its taxation woes.
First, some tax bureaus implement preferential policies, or
approve tax cuts, rebates and exemption without prior state
permission or approval. Second, corporate tax reports are not
scrutinized for omissions or errors. Third, fines are not imposed
for late or overdue tax payments. Fourth, because certain
preferential tax policies require the approval of several state
departments, taxpayers have been known to exploit these cumbersome
and bureaucratic procedures.
In the case of corporate taxation, the report reveals that spot
checks on enterprises showed that 100 out of 788 enterprises, about
12.69 percent, were guilty of filing erroneous tax reports, or of
taking advantage of preferential tax policies for tax evasion
purposes. The report also states that the situation is worse in
enterprises funded by local governments.
As for local governments acting on their own accord, the report
says that among the 35 cities surveyed, local governments of 19
cities intervened in tax collection in one way or another, or
exceeded their authority in granting tax cuts and/or exemptions.
Forty-six of the 788 enterprises surveyed disclosed that they enjoy
preferential tax treatments given by local governments.
Some local governments were also found to have implemented
unauthorized tax rebate policies for the purpose of attracting
foreign investment, in violation of tax laws and State Council
regulations.
He Zhenyi added that the tax reforms implemented in 1994 were
not entirely adequate.
For example, levels of taxation or the amount of tax to be
collected in any given year are predetermined, the year before, by
officials at the State Administration of Taxation and local
taxation bureaus. This is typically calculated by referring to the
total tax base, and the performance of local economies the previous
year. Further, officials are often more concerned with meeting
their budget targets than actually achieving accuracy in tax
terms.
Ni said: “The statistics (gathered from previous economic
performance indicators) should be used for reference only, and not
for projecting or setting targets for the following year.”
Responding to the findings in the CNAO’s report, an official
with the State Administration of Taxation said that the
administration has already begun to study the feasibility of
modifying current tax guidelines.
(China.org.cn by Tang Fuchun, September 30, 2004)