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China will not resort to tax cuts to fuel its economic development this year, Finance Minister Xiang Huaicheng said yesterday.
His remarks came after some experts claimed that the growth of tax revenue in recent years was much faster than that of economic growth.
Many foreign countries have also been reducing taxes to stimulate economic development.
Tax cuts will be of little help to China's economic development, because the variety of indirect taxes include value-added tax, consumption tax and business tax which made up more than 50 per cent of the country's overall tax income, Xiang said.
"If tax cuts result in a drop in price, it will make the pressure of deflation even worse," he said.
Meanwhile, China's present tax burden is at a medium level compared with foreign countries.
"China has not raised its tax levels since 1994, when the country implemented the present tax system," he said.
On the contrary, some tax varieties dropped.
Earlier this year Jin Renqing, director of the State Administration of Taxation, said China had already lowered its tax rate by tens of billion of yuan annually in recent years.
China has stopped collecting regulatory tax on the direction of fixed asset investment with a drop of 20 billion yuan (US$2.4 billion) in tax revenue, he said.
The government has granted a 40 per cent decrease in income tax to enterprises that use locally made equipment for technological innovation and has also lowered tax rates on the secondary real estate market.
Preferential tax policies are also given to high-tech industries and agriculture infrastructure projects as well as programmes and enterprises in western China.
Tax expert Ni Hongri from Beijing agreed with Xiang, saying China's tax system was still in the initial stages when compared with Western countries.
Meanwhile, the government still plays an important role in the current economic restructuring, Ni said.
"China cannot expect increased investment from the private sector and individuals by merely cutting taxes," she said.
But Ni said the central government should consider "a structural adjustment" to make the tax system more efficient.
"This means some taxes need to be reduced while others need to be increased," Ni said.
The central government's recent decision to spread the "tax-for-fees" reform in rural areas was one such adjustment used to reduce the financial burden of farmers.
The government should also consider increasing taxes by levying a new variety of taxes such as inheritance tax and property tax, she said.
The country should shift its present production-based value-added tax to a consumption-based one, which allows companies buying fixed assets to enjoy tax rebates.
The threshold for urban residents' income tax should also be raised.
(China Daily April 17, 2002)
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