The State Administration of Taxation recently issued a notice on strengthening tax collection to secure the expected growth of tax revenues for this year.
Such an effort to fight tax evasion is always needed to ensure compliance as taxpayers should be urged to pay their lawful dues, and in time.
However, the taxman's latest effort at tightening compliance comes at a time when the country just saw the slowest quarterly growth in almost a decade and is struggling to lift the economy out of recession.
As a result of the economic slowdown, China's fiscal revenue fell 8.3 percent to 1.46 trillion yuan while tax revenue shrank 10.3 percent to 1.3 trillion yuan in the first quarter of this year.
Chinese tax authorities have reason to worry about the decrease in tax revenue. For many years, the nation's coffers have been overflowing thanks to the robust economic growth. These have not only helped to sustain China's economic expansion in previous years but also cushioned the country against the global financial and economic crisis.
To finance the increasing government expenditure needed to boost economic growth and improve social welfare, tax officials may find it imperative to stamp out tax evasion and increase tax revenues.
However, the fundamental reason behind the current fall in collection of tax revenue was that business profits shrank as economic growth slowed and taxes were cut to spur consumption.
While it is necessary to standardize tax collection to increase tax revenue, there is a case for optimizing collection.
Moreover, a family-based individual income tax, which is long overdue in this country, should be well considered.
Another measure could be raising the taxable threshhold, which will benefit consumers and encourage the much-needed spending.
As for enhancing control, the tax authorities should weigh the impact of tightened tax collection on consumer behavior.
Though it is still too early to conclude that the Chinese economy has stepped out of recession, favorable taxation policies have borne fruit in keeping up domestic consumption.
Take the case of the 50 percent cut of the purchase tax on cars with engine displacements of less than 1.6 liters effective from January 20. Revenue from that tax reduction was down 7.6 percent in the first quarter, but China's auto sales hit a monthly record of 1.11 million vehicles in March, exceeding US sales for the third month in a row.
No one would have expected tax cuts and rebates for small car purchases could work such magic.
Therefore it will always be advisable to think twice before the benefits of consumers and of the state are put on a scale of taxation in such a lean economic time.
(China Daily?May 11, 2009)