SOE laid off workers cut slack on taxes

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

SOE laid off workers cut slack on taxes

The State will introduce a new series of tax incentives to encourage reemployment of unemployed workers displaced from State-owned enterprises (SOEs) during corporate restructuring.

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The State will introduce a new series of tax incentives to encourage reemployment of unemployed workers displaced from State-owned enterprises (SOEs) during corporate restructuring.

Hao Zhaocheng, deputy director of the State Administration of Taxation (SAT), said Tuesday the government will encourage unemployed people to establish their own companies by offering them three-year exemptions from taxes for related to business urban construction, education and personal income.

The government will also raise the thresholds for levying business and value-added taxes for such individuals as well, tax officials said.

For companies which help create jobs for the unemployed people, the government will offer tax favours including cuts on business taxes and corporate income taxes based on the actual numbers of people they have employed, he said.

According Xie Xuren, director of SAT, starting this year, the government will also implement a new value-added tax policy for the eight major industry sectors in China's northeastern provinces, known as the iron belt and one of the oldest and most difficult industrial areas in the nation.

The eight industries, which include oil and car manufacturing among other sectors, can claim value-added tax deductions when buying new machinery equipment.

Based on the experiences gained from 2004, the government will implement the new policy across the country later, he said.

Although the moves will lead to losses in tax revenues, these tax incentives are important functions of the country's tax system, analysts said.

"A good tax system shouldn't be attempted to collect more in taxes year after year," said Zhang Peisen, a senior researcher with SAT's Taxation Research Institute. "It should instead help balance society's responsibility and its need to stimulate economic growth."

In this sense, the central government's decision to seek a steady process in reforming the existing tax system, which was adopted in 1994, is a wise move, Zhang said.

China is now practising a production-based, value-added tax system. Under the system, fixed assets are classified as consumer goods and are subject to taxes. Enterprises cannot claim tax deductions for purchase of fixed assets such as equipment and machinery.

The system places a heavy burden on enterprises wanting to increase their fixed assets investment, especially for enterprises that are intensive in their use of capital and technologies. The system is considered as having posed a hurdle to the nation's economic restructuring.

"Experimenting with the new value-added tax policies suggests a new round of tax system reforms in China has been kicked off," Zhang said. He added China has entered the best period to reform its old tax system.

The Chinese economy should continue to grow at more than 8 per cent in the coming several years, while the consumer prices will be at less than 5 per cent before 2008, he said.

The stable increase of tax revenues since 2000 also lay a solid foundation for the reform, Zhang said. The country's tax revenue, which grew 250 billion to 300 billion yuan (US$30.1-36.1 billion) a year since 2000, will continue to grow at a rapid pace in the coming years, he forecast.

China's tax revenue exclusive of tariffs and agriculture tax rose a year-on-year 20.3 per cent to 2.05 trillion yuan (US$246.5 billion) last year, according to Xie.

In 2004, China will deepen the tax and fee reform in its rural areas to further reduce the financial burden of farmers, Xie said. Except taxation on tobacco, the government will eliminate the tax on special agriculture produce across the country, he said.

The government will lower the average agriculture tax rate, which stands at about 8.4 per cent now, by 1 percentage point next year, he said. It will also make full preparations for the reform on enterprise income tax law and personal income tax law this year.

China is now practising dual-track enterprise income tax policies for domestic and foreign-funded companies. The income tax rate for domestic companies was 33 per cent, while that for foreign-funded companies stood at 17 per cent.

"The country should implement the national treatment for domestic and foreign-funded companies, because they should compete on an equal footing," Zhang said.

In recent years, personal income tax has become a hot topic, because the threshold for taxation which stands at 800 yuan (US$96) was considered probably too low.

The present personal income tax rates vary in 11 categories based on income sources -- and this system does not have much control over an individual's total annual income.

Taxation is aimed at people with high-level incomes to promote economic development and social stability.

As a result, the current 800-yuan (US$96) starting point for taxation on monthly income needs to be raised, Zhang said.

Personal income taxes should also be based on a combination of various means of incomes, including bonuses and dividends, instead of merely salaries like today.

Meanwhile, the personal circumstances of an individual, such as supporting children and the elderly, may be considered before the tax is computed. Enditem

Source: China Daily

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