China to start reform of taxation system

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Last updated at: (Beijing Time) Wednesday, January 14, 2004

China to start reform of taxation system

China is to start an overhaul of its taxation system this year, the head of the State Administration of Taxation (SAT) Xie Xuren said here Tuesday.

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China is to start an overhaul of its taxation system this year, the head of the State Administration of Taxation (SAT) Xie Xuren said here Tuesday.

Xie told a press conference held by the Information Office under the State Council that in the near future, China will reformthe system of value added tax (VAT), corporate income tax and personal income tax and launch a new fuel consumption tax.

Xie said China will choose eight industries in the northeast China industrial zone as the base for the experiment of turning the production VAT into consumption VAT this year. He said the industries include equipment manufacturing, chemical industry, metallurgy industry, automobile industry, shipbuilding, high-tech industry and farm produce processing industry.

In response to a question, Xie said the VAT reform might lead to temporary reduction in the collection of VAT. However, he said the move would stimulate the expansion of the industries, encourage enterprises to increase investment and carry out technical upgrading, which in turn would optimize the industrial structure and enhance competitiveness of Chinese enterprises.

He said the reform would help promote economic growth and increase tax revenue in the long run.

Xie said China has already set the goal of taxation reform. In the near future, the country will carry out a series of major steps, including the personal income tax system.

He said as a major step of the taxation reform, China is finalizing a plan of imposing a fuel consumption tax to replace the current road maintenance fees. He said the plan has already entered the final phase of the legal approval process and will take effect as soon as the international oil prices stabilized at a reasonable level.

In addition, China has launched a nationwide experiment on taxation reform in rural areas this year. In order to create conditions for the unification of the tax systems in both urban and rural areas, the Chinese government will abolish all farm produce taxes except the tobacco tax and gradually lower the rate of agriculture tax.

Since China began reform and opening to the outside world in the 1980s, the country has carried out two major reforms of its taxation system. The latest one in 1994 introduced the division of tax collection and revenue between the central and local governments and launched the VAT.

Since then, China's tax income kept growing fast over consecutive years. In 2003, the tax revenue for the first time in history increased more than 300 billion yuan (36 billion US dollars) over the previous year. The 2003 tax revenue topped two trillion yuan, reaching an all-time high.

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