| Official pledges further tax reforms |
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| Monday,March 21,2005 Posted: 10:13 BJT(0213 GMT) |
BEIJING, March. 21 -- Vice-Minister of Finance Xiao Jie said yesterday that China will press ahead with fiscal and tax reforms over the next five years in order to guarantee economic growth and social harmony.
Xiao pointed out that China's fiscal and tax system is confronted with new challenges, as the nation strives to construct a moderately well-off society by 2020.
The government's tax and fiscal reforms will conform with the requirements of the scientific development concept, he said.
He added that reform will be based on reality and will also draw from successful experiences in other countries.
China's fiscal and tax system has experienced profound changes since the nation embarked on reform and opening in the late 1970s.
Xiao pointed out, during that time, China had taken important steps towards establishing a public fiscal system.
Stanford University Professor Masahiko Aoki agreed that China has notched up great successes in improving its tax and fiscal system over the past decade.
These include the separation of tax collection between the central and local governments, which appeared to have accomplished its primary goals.
But it appeared, according to Aoki, that the rights and abilities of governments lower than provincial level had not been clearly defined.
This meant that they lacked sufficient funds to cover their educational, healthcare, welfare and public infrastructure obligations.
This problem has widened the income gap between urban and rural areas, he warned.
Xiao said the government will improve the existing tax sharing system between the central and local governments to increase the transfer of funds to poorer areas.
The government will also continue to optimize the current tax system, he said.
An effective tax system should help ensure a more equitable and relatively favourable environment for both market players and economic development, Xiao said.
"An effective taxation system will help contribute to a stable growth in fiscal revenue," he added.
It should also play an effective role in market regulation.
Xiao added that the government will continue to improve the corporate income tax system over the next few years.
Foreign and domestic firms are currently charged different levels of corporate income tax. The rate for domestic firms is about 33 per cent, while foreign-funded companies are charged around 17 per cent.
Such a tax policy fails to create a competitive environment, said Xiao.
The government will regularize the current favorable policies for foreign-funded firms and implement a unified corporate income tax, he said.
Xiao failed to reveal how much foreign-funded firms had enjoyed in tax breaks in China over the past decade, but some economists estimate the figure is around 50 billion yuan (US$6 billion) each year.
Some foreign-funded firms also evaded taxes totalling about 30 billion yuan (US$3.6 billion) every year.
Following the unification of the nation's tax policies, foreign-funded firms will be given a certain unspecified transition period.
And the government will continue to offer tax advantages to some industries after the single tax policy comes into effect.
As a result, unifying the tax policies will not noticeably increase the burden on foreign-funded companies.
"It will also not have a major negative impact on China's utilization of foreign investment," he said.
China's personal income tax - currently at a threshold of 800 yuan (US$96.4) - could not help narrow the income gap effectively between different social groups, Xiao said.
The government will take steps to improve that tax in the coming years, he added.
China has been implementing a production-based value-added tax system since 1994.
Under the system, enterprises cannot claim tax deductions for the purchase of fixed assets such as equipment and machinery.
The system places a heavy burden on enterprises aiming to increase their investment in fixed assets, especially for capital and technology-intensive enterprises.
"We will continue the trial reform in Northeast China and gradually expand that to the entire country," he said.
The government will also expand the coverage of consumption tax.
Luxury consumer goods and products which harm the environment will be subjected to the tax, he said.
He added that China will continue to abide by its promises to the World Trade Organization to improve the tariff system.
The overall tariff level will drop from last year's 10.4 per cent to 9.9 per cent this year.
The government will study the possibility of introducing a property tax, because of the high-level of taxes collected during the course of real estate development and transactions, Xiao said.
The government will also deepen its reform of the budget management system, he said.
(Source: China Daily)
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