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High local govt fiscal revenue prompts calls for reducing tax burdens

By Wang Xinyuan (Global Times)

08:40, August 07, 2012

The tax revenue growth of local governments exceeded the local GDP growth in the first half of this year amid the economic slowdown, which underscores the urgency for the government to further cut taxes to relieve the burden of businesses and spur growth, experts said Monday.

Majority of the local governments saw fiscal revenues rise as high as 20 percent, much higher than their local GDP growth in the first six months, the official People's Daily newspaper reported Monday, citing official statistics.

The high growth of fiscal revenues was mainly caused by indirect taxes, a major component of taxes, Yang Zhiyong, a senior researcher with the National Academy of Economics Strategy under the Chinese Academy of Social Sciences, told the Global Times.

Unlike a direct tax imposed on an individual or property, indirect or turnover tax is imposed on a transaction.

Inflation and double taxation in some cases also contributed to a faster growth of the indirect or turnover tax revenue, said Zhang Guangtong, vice president of the School of Taxation, Central University of Finance and Economics.

In China's tax structure, indirect or turnover taxes include value added tax (VAT), business tax, consumption tax and other attached taxes such as urban-rural construction and education tax, and in total they account for about 70 to 75 percent of all tax revenues.

It is important to reduce the indirect or turnover taxes and grant more tax deductions to small and medium-sized enterprises, Zhang said.

Yang said that China should further reduce tax rates and expand the tax reform replacing business tax with VAT to avoid double taxation caused by an inconsistent taxation system for manufacturing and service sectors.

Industrial manufacturers are imposed VAT while service businesses such as financial, consulting and transportation companies pay business tax.

To boost the development of the service sector as part of the efforts to restructure its economy, China introduced a pilot VAT reform program in Shanghai starting January this year, and approved eight other cities and provinces to expand the reform.

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