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It is right time for tax cuts in China

By Luo Lan (People's Daily Overseas Edition)

16:09, March 08, 2012

Edited and translated by People's Daily Online

China’s fiscal revenue, tax revenue in particular, has been growing rapidly in recent years, enabling the country to further reduce taxes on companies and residents. Many Chinese exerts and entrepreneurs believe that it is right time for tax cuts in China.

Fiscal revenue grows much faster than GDP

According to statistics from the Ministry of Finance, China’s tax revenue grew nearly 23 percent last year to nearly 9 trillion yuan. Meanwhile, its fiscal revenue grew nearly 25 percent to exceed 10 trillion yuan for the first time. The growth rates of the country’s tax and fiscal revenues were both significantly higher than its GDP growth rate.

Last year, China’s tax revenue accounted for more than 19 percent of GDP, compared with nearly 13 percent in 2000. Its tax revenue grew sevenfold between 2000 and 2011.
How heavy is tax burden in China that keeps steady growth in fiscal revenue?

The macro tax burden is measured by the ratio of government revenue to GDP. Jia Kang, director of the Ministry of Finance’s fiscal science research center, said that the ratio of China’s fiscal revenue to GDP may rise to around 22 percent this year, and its macro tax burden may reach 32 percent if all sources of government revenue are taken into account.

The country’s macro tax burden is not high compared with that of other countries, but the proportion of indirect taxes in its total tax revenue is indeed too high, and many domestic enterprises are overburdened under the existing tax system. Furthermore, the proportion of direct taxes on the rich who are capable of paying more taxes is almost negligible. These factors have led to widespread “tax misery” among the Chinese people.

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