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English>>China Business

Tax reform crucial to stable growth

By Zhang Monan (Global Times)

08:30, October 26, 2012

Given China's current economic situation, tax reform has become a crucial tool for the country to maintain steady growth and spur domestic consumption.

I suggest the government start structural reform to the current tax system with the following measures.

Firstly, it should cut individual income tax to better adjust income distribution. About 70 percent of China's tax income comes from the consumption tax, value-added tax and business tax, which implies that the tax burden is mostly undertaken by ordinary consumers rather than the rich. As such, the government should further lift the minimum threshold for personal income tax from 3,500 yuan ($347) to around 5,000 yuan and consider taking the family as a unit for levying tax.

Secondly, regulators could cut consumption taxes, such as value-added tax, to stimulate domestic consumption. Also, the government could offer favorable tax policies in areas it wishes to develop, such as energy-saving commodities and innovative goods.

Thirdly, China should further lower the tax burden for small and medium-sized enterprises (SMEs), which are the backbone of China's economy.

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