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Further tax reforms needed

By Song Shengxia (Global Times)

08:12, April 26, 2012

The country should extend a pilot value-added tax (VAT) reform program nationwide to further reduce tax burdens on companies in order to boost the nation's economy amid a tough economic climate, tax experts said yesterday.

"Faced with slowing tax revenue growth, we should focus on rationalizing tax structures and reducing tax burdens on enterprises with measures such as extending the VAT trial program to regions beyond Shanghai, rather than enhancing efforts to collect taxes," Jing Linbo, deputy director of the National Academy of Economic Strategy under the Chinese Academy of Social Sciences, told the Global Times.

China reported total tax revenue of 2.586 trillion yuan ($410.48 billion) in the first quarter, up 10.3 percent year-on-year, according to Ministry of Finance Tuesday.

The growth rate marked the slowest pace in three years, down by 22.1 percentage points from the same period last year, the ministry said.

Revenues from major tax items saw slower year-on-year gains. The growth rates of VAT, consumption tax, business tax, and corporate tax were 5.4, 15.1, 7.6, and 20.5 percent, respectively, dropping 17.8, 6.4, 18.7, and 17.4 percentage points year-on-year, the data showed.

The ministry attributed the fall in tax revenue growth to the domestic economic slowdown and lower property sales.

The government's moves to reduce tax burdens, including an increase in the income tax threshold, tariff reductions on certain imported products and favorable tax policies for small and micro-sized enterprises, have combined to drag down the tax revenue, the ministry said.

"The era of fast economic growth and high tax revenue has long gone. We should abandon the mind-set of assessing the government's performance by such indictors as economic growth," Jing said.

China's economy expanded 8.1 percent year-on-year in the first quarter, marking the fifth consecutive quarter of slower growth.

"We should benefit from the experience gained from the VAT trial program and extend it to more regions and sectors such as construction installation sector, which would achieve a very good result in reducing tax burdens on small and micro-sized firms," Zhang Bin, director of the taxation office at the National Academy of Economic Strategy, told the Global Times yesterday.

China launched a pilot tax reform in Shanghai at the beginning of this year, replacing business tax with VAT in the transportation and service industries.

Replacing business turnover tax (tax on the gross revenue of a business) with VAT - which taxes the added value throughout the supply chain - is deemed as a significant move to eliminate duplicate taxation.

"As the tax revenue growth is narrowing, local governments should also avoid extravagant spending by cutting on expenditure on official receptions, vehicles and overseas trips and direct funds toward improving people's livelihood such as social insurance," Zhang said.

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