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Broader reforms key to addressing income inequalities

By Cong Mu (Global Times)

08:11, April 26, 2012

Limiting senior executives' salaries is not enough to stop the wealth gap from widening, an economist said yesterday, as income disparity issues come under the spotlight again.

Premier Wen Jiabao reiterated his stance on fighting unfair income distribution in China at the beginning of his visit to Sweden Tuesday in Stockholm, China News Service, a State-owned news agency, reported yesterday.

Wen said that income equality is the basis for social stability. He said the government should help raise rural and urban people's incomes, especially the minimum wages, while limiting the senior executives' salaries in monopoly sectors, be it resource or price monopolies.

"Senior executives' incomes in monopoly industries obviously exceed those in competitive industries, but it is only one facet of the problem," Wang Xiaolu, vice president of the National Economic Research Institute, a Beijing-based think tank under the China Reform Foundation, told the Global Times yesterday.

Wen had emphasized strengthening control on executives' salaries in State-owned enterprises and financial institutions during the National People's Congress in March.

The total salaries for senior executives in 1,921 listed companies in China last year reached 8.9 billion yuan ($1.4 billion), with China Vanke, a real estate giant, paying a total of 111 million yuan for 22 senior executives, Shenzhen Economic Daily reported yesterday. Banks and other financial firms also doled out handsome rewards to their executives, despite lackluster performance of their stocks last year.

Although appallingly high salaries of senior executives often attract scrutiny, deeper and more comprehensive reforms are required to narrow the wealth gap, including reforms on fiscal and taxation systems, land auction system, real estate tax, government budget and administrative system, Wang said.

"We have been technically ready for the income tax reform. The key issue now is to work out a program that is rational and easy to implement. The change can't be achieved at one shot. We should proceed with the reform step by step," Jia Kang, head of the Research Institute for Fiscal Science under the Ministry of Finance, told the Global Times yesterday.

Meanwhile, the State Administration of Taxation is discussing income tax schemes for partners in a partnership firm, which is likely to affect many wealthy people who invest in private equity firms as limited partners (LPs).

The highest tax rate for LPs may be hiked to 40 from 35 percent of the book profit, and the details are expected to be released in May, 21st Century Business Herald reported, citing unnamed sources.

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