Income Tax Reform, Dreadful Not in Slowness But in Standstill: Analysis

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Last updated at: (Beijing Time) Wednesday, July 10, 2002

Income Tax Reform, Dreadful Not in Slowness But in Standstill: Analysis

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None of the "Ten Richest Chinese" as assessed by the Wall Street Journal in 2001 has paid any income tax, as is revealed by Chinese media. Therefore, the salaried groups who live on wage-earnings with only meager pay have played principal roles in paying income taxes.

The Chinese people have so far earned from multiple channels, which come roughly from the four aspects: wages, subsidies from units, extra-benefits out from "small treasury" and "extra-earnings" from other units.

The actuality is that the income tax from wages has mostly been levied by way of "hand-in by deduction" while subsidies are only partly taxed. Serious income-tax-evasion exists in "extra-benefits" and "extra-earnings". Of the income taxation, that from wages and other salaries come to some 52.7 percent.

While a great amount of income tax is draining away, the problem of discrepancy between the rich and the poor is aggravating day by day. The income Gini Index for the Chinese people has reached 0.45, pointed out Lu Zhiqiang, deputy director of the State Council Research and Development Center, and China has already stepped into the alignment of very unequal income countries according to practical criteria of the world.

Yang Chongchun, Vice president of the Chinese Taxation Society is of opinion that the Chinese people has a weak sense in tax payment for the tax law is imperfect in China and taxes are imposed separately with many a deduction. It is very difficult to make a fair load in tax payment. Therefore, a regulatory function must be introduced and strengthened while keeping an everlasting increase in income taxation from individuals.

It is difficult to supervise and control on all sorts of incomes aside from the wages. No vehement punishment is exerted on those tax payment evaders and there is no sufficient coordination in work among different departments concerned and so on and so forth. All this has incurred the present unhealthy situation in income taxation. The Chinese have a special favor on cash, which, though is a habitual pattern of consumption for the Chinese people, has increased difficulties in income taxation.

To make the income tax help regulate differences in personal income and a stabilizer of economy it is necessary to adjust accordingly the existing pattern of taxation, tax-rate, taxation scope and the minimum line for taxation. Some experts suggest that the experience of the ROK can be taken over for use in which the bankcard is used to regulate some economic activities for reducing the tax evasion.

The fast economic growth over the past 20 years has helped form a great number of rich men and women, which has raised high daily the level of being listed as the rich in China. However, the personal income tax, having seen a consecutive increase of over 20 percent in the past seven years, amounted only to RMB 99.599 billion-yuan by the end of 2001, a meager drop of water in the sea as against the total tax of more than 1500 billion-yuan in people's currency

In this era, the exciting era of turning out rich persons in which preference is given to efficiency, fair treatment, especially the fair treatment expressed in system has come to be of more and more importance. Only by doing so it is possible to keep a sustainable and eventual efficiency. If China fails to find out a reasonable way for solving the unfair income tax, experts are worried of a widening gap of the rich and the poor, which will affect the peace and security in society, reducing the financial revenue, restricting consumption and impeding the recovery of economy.

Nevertheless, the latest news says, the new income tax law will not be available within one or two years. Though the tendency for the income tax reform is irreversible it is impossible to bring it out in a very short time.

The income tax, the kind of tax that has everything to do with the populace will effect a greater influence than any other in taxation concept on everybody in China. Whoever's unable to pay income tax as s/he should have to do can hardly be imagined as an honest person who's able to pay taxes in other economic activities nor is it imaginable that s/he is highly credible in this respect.

The income tax gets higher along with the economic development and continuous increase in personal income. The ceaseless emergence of rich persons means a greater ratio in China's gross taxation rather than the 6.56 percent as witnessed today. The speedy pace in the growth of income tax will turn out to be a great potential for China's financial revenue in the days to come, a potential that must not be underestimated.

The Chinese taxation will eventually be transited from the indirect to the direct. Should the Chinese government wants to regulate freely the economy by using the pivot of taxation rate as do the western countries it cannot do otherwise than relying on the great increase in taxation including the increase in income tax-payment.

But all this depends on the possible fast improvement and perfection of the income tax system. For this, Yang Chongchun, who ever been the deputy director of the State Tax Administration is of the opinion that for tax reform, "what is dreadful is not slowness but standstill". It is advisable to take even a little step forward if unable to get anything big but no reform is certainly the last to take.

By People's Daily Online

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