"An overall tax cut will be of little help to the country's economic development, which suffered an insufficient demand from both home and abroad," said Ni Hongri, a senior researcher with the Development Research Center under the State Council.

"This is because China's tax system is still in a fledgling stage compared with western countries," said Ni.

The expert re-affirmed the important role of government in the current economic restructure.

"China cannot expect increased investment from private sectors and individuals by cutting taxes," she said.

But Ni said the central government should consider "a structural adjustment" to make the tax system more efficient.

Her remarks mean some taxes need to be reduced while others need to be increased, said Zhang Peisen, a senior researcher with the Taxation Research Institute.

The central government's recent decision to spread the "fees-for-tax" reform in the rural areas was one of such adjustments to reduce farmers' burden.

The government should also consider increasing taxes by levying new kinds of taxes such as inheritance tax and property tax, he said.

Zhang Shuguang, a senior researcher with the Beijing Unirule Economic Institute, said the structural adjustment is a wise choice to stimulate domestic demand at present, because the growth of China's tax revenue has far surpassed that of the GDP.

Statistics from the State Administration of Taxation suggest China's tax revenues - excluding those from customs duties and agriculture taxes - reached 1.5157 trillion yuan (US$182.6 billion) in 2001, a year-on-year increase of 21.1 per cent.

"The growth rate was about three times that of the GDP, while the two rates should be very close in a normal situation," Zhang Shuguang said.

Although GDP growth contributed about 50 per cent to growth in tax revenues, enhanced efforts with the help of computers to close loopholes during tax collection also contributed about 50 per cent to the revenue.

"It is not wrong to close tax loopholes, but we cannot deny the tax burden increased on companies, especially medium and small non-State-owned companies," Zhang said.

As part of the structural adjustment, 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 at which urban residents start paying income tax should also be raised.

Zhang said the adjustment would not add pressure to China's fiscal system. "The revenue gap could be made up through issuance of treasury bonds."

Since China first implemented a pro-active fiscal policy which features large investment based on treasury bonds, investment efficiency has slowed, he said.

(China Daily January 10, 2002)