Fiscal experts have called for China to accelerate the reform of its tax system to ensure that tax revenues and gross domestic product (GDP) grow in tandem.

China's taxpayers are shouldering far too heavy a burden, warned Pan Xianzhang, deputy director of the Research Intastitute of the Fujian Provincial Local Taxation Bureau.

And the current pace of reform in the tax system is far too slow, he said.

China's tax revenue grew 25.7 percent last year to 2.57 trillion yuan (US$309.9 billion), according to figures from the State Administration of Taxation.

Tax revenue is expected to account for 19 percent of the nation's GDP in 2004.

"Growth in tax revenue is much faster than the growth of GDP," Pan said, noting that "this is abnormal."

Blame for this rapid revenue growth rests squarely on the shoulders of the duplicate taxation levy and too heavy a tax burden on both companies and individuals, he said.

But Yang Chongchun, chairman of China Taxation Association, disputed Pan's analysis, saying the fast tax revenue growth suggests it is on the way to returning to normal.

"We cannot just compare the revenue growth rate with that of GDP," he said. "We should compare the respective tax varieties with tax sources."

For example, the growth rate of value-added tax is similar to that of the country's industrial output value, while the growth in company income tax is close to the rate of profit growth, he said.

Shu Qiming, a senior official with the State Administration of Taxation, echoed Yang's remarks, claiming that last year's tax revenue growth and GDP growth were relatively normal.

"A number of factors, including changes in the tax system and increased efforts in tax collection, would help increase tax revenues," he said.

An earlier study of 30,000 companies also found that companies' tax burden was stable, he said.

Despite different views on the relationship between the growth in tax revenue and GDP, experts and officials agreed that reform of the tax system is necessary.

"That goes without saying," remarked Gao Peiyong, a senior researcher at the Chinese Academy of Social Sciences.

He suggested the first step the central government should take is to spread value-added tax reform, which started on a pilot basis in Northeast China last year.

The reform, which replaces the current production-based tax with a consumption-based one, allows companies to enjoy tax rebates when importing new machinery and equipment.

The government should also make full preparations for the reform of enterprise income tax and personal income tax.

But such large-scale reform is unlikely this year, said Gao, adding that it is even unlikely that the authorities will take reform of the value-added tax system beyond northeast China this year.

(China Daily January 11, 2005)