Economists called on the government to further cut taxes in order
to stimulate growth in the wake of the SARS outbreak.
The Chinese Academy of Social Sciences senior economist Yuan
Gangming noted the negative impact SARS (severe acture respiratory
syndrome) had on the majority of the country's industries.
But only a few industries, such as tourism and catering, received
tax breaks to mitigate the impact of the outbreak.
"The limited tax favours, mainly applied to business taxes, are not
enough to fuel economic recovery,'' he said.
Chinese companies bear too many tax burdens compared with foreign
countries, Yuan said.
Liu Heng, a tax expert at the Central University of Finance and
Economics, said tax cuts had become an international trend. "If
China insists on not cutting taxes, it could have trouble
attracting foreign investment,'' he said. He added a tax policy is
an important indicator of a country's investment environment.
However, Zhang Peisen, a senior researcher with the Taxation
Research Institute, said the country was unlikely to cut taxes
further. "The country has already lost some revenue, as the country
lowered tariffs and cut the business tax rate for financial
institutions by 1 percentage point at the beginning of this year,''
he said.
The SARS outbreak would also lead to tax losses of 20 billion to 30
billion yuan (US$2.4 billion to US$3.6 billion) for the whole
year.
On
the other hand, the country needs more money to spend on
investment, health and other public services.
Ni
Hongri, a senior researcher at the Development Research Centre,
said an overall tax cut would be of little help to the country's
economic development, because China's tax system was still in its
initial stage compared with Western countries.
The government still plays an important role in the current
economic restructuring, Ni said. "China could not expect more
investment from the private sector and individuals by merely
cutting taxes,'' she said.
But in the long term, the government should consider "a structural
adjustment'' to make the tax system more efficient, said Ni and
Zhang.
The tax system's structural reform, which will reduce the tax
burden on some industries while increasing taxes on others, will
make the primary distribution more rational and effective, Zhang
said.
Now that China is a member of the World Trade Organization, the
country should end the enterprise income tax privileges enjoyed by
foreign-funded companies.
China is now has a twin-track enterprise income tax policy for
domestic and foreign-funded companies.
The income tax rate for domestic companies was 33 per cent, while
that for foreign-funded companies was 17 per cent.
The country should also speed up shifting the value-added tax levy
from the current production-based one to a consumption-based
one.
The threshold for personal income tax, which stood at 800 yuan
(US$96), should also be raised.
The government should also consider imposing an inheritance tax to
help adjust income distribution. Enditem (China Daily)
(China Daily June 23, 2003)
