Tax and Profit Are Different 　　Following are excerpts from this article written by Our Guest Commentator. Tax and profit actually are two different economic concepts, however, in the past nearly 20 years, when people appraised the production, operation, performance and contribution of a state-owned enterprise, they often regarded "turning over profit and tax to the state" as an important index and even a primary index, thus creating a new mistaken area which confused and made no difference between tax and profit, this has not only led to confusion in understanding, but has brought about many defects and adverse effects on the management of state-owned enterprises and the management of the state's tax revenues. 　　In assessing the situation regarding the production and operation of enterprises, including state-owned ones, the heart of the matter is the asset business efficiency, relevant assessment indexes include, in addition to the capital input-output ratio, profit rate, i.e., the ratio between total capital and profit, net asset profit rate, i.e., net asset rate of returns. 　　The economic index of "turning over to profit and tax to the state" is unscientific, it mixes up tax and profit-two completely different economic scopes and concepts, blurs and even covers up the actual economic performance and asset returns of an enterprise. According to the objective requirement for the establishment of a socialist market economic structure, it is high time to make up our minds to abolish the outdated and harmful index, formulation and practice of "turning over profit and tax to the state". 　　"The concept of "turning profit and tax over the sate" is a product of the traditional planned economy. Before the start of reform and opening up, it was the general view of the theoretical circles and economic management departments that since the profits turned over by state-owned enterprises were state property, and the income taxes turned over by state-owned enterprises were also state property, therefore, there was no need for the state to levy income tax from state-owned enterprises. This muddled understanding actually negates the state's position and role in the collection of financial revenues through tax levy and in macro-economic regulation and control. 　　In 1983, China introduced the "substitution of tax payment for profits", this means separating the profits turned over to the state by state-owned enterprises from the income tax paid by enterprises to the state, as a result, the position of tax revenue in macroeconomic control began to become clear, and its functions and role began to strengthen. However, after tax payment was substituted for profits, some departments and local governments introduced the contract responsibility system in state-owned enterprises over a wide area, managers of state-owned enterprises put the "profits and taxes they turn over to the state" together as one target they contracted with the state, as a result, this, under a specific background, actually negated, in another form, the "substitution of tax payment for profits", and negated the essential difference between tax and profit, thereby weakening the state's taxation management over state-owned enterprises. 　　If, around the time of the "substitution of tax payment for profits", the concept and index of "turning over profit and tax to the state" confused the demarcation and difference between the income tax and profits from state-owned enterprises, then, today continuing use of the concept and index of "turning over profit and tax to the state" not only confuses the demarcation and difference between income tax and profit of state-owned enterprises, but also mixes up what involves the whole tax payment of state-owned enterprises, and blurs the demarcation and difference between direct and indirect taxes and profits, thus resulting in the distortion of the information about the state's tax management over state-owned enterprises and management of state assets, and possibly giving rise to many contradictions and problems and even bringing about unnecessary trouble and chaos. 　　Tax payment is the main source of the country's financial revenues. Paying tax according to law is the bounden duty and responsibility of each taxpayer, including state-owned enterprises. 　　The difference between tax and profit is not only manifest in economic meaning, but also in its legal and political meaning; when state levies taxes according to law, it exercises the state's administrative power; when it participates in the distribution of returns on state capital, it exercises the right of owner of state assets. 　　Abolishing the index of "turning over profit and tax to the state" and introducing the separate assessment and management of tax revenue and profit is not only conducive to reflecting the real situation of the production and operation of state-owned enterprises and improving the operation and management of state-owned enterprises themselves, but also helps the state intensify its supervision and control of tax sources of enterprises, including state-owned ones, and tax revenue management, and plug the loopholes of taxation, it also helps state-owned enterprises, in line with the requirement for the establishment of a modern enterprise system, to ensure distinct property rights, clearly defined rights and responsibility, separation of government administration from enterprise management and scientific management, and the continuously improved market competitiveness and economic efficiency. 　　Abolition of the confused and unscientific statistical index of "turning over profits and taxes to the state" reflects both the deepening reform of China's state-owned enterprises and the continuously deepening reform in the area of the distribution and redistribution of China's national income and in the management of the macro-economy as a whole. That is the necessity of history. Opinion 1999-04-27 Page1 Full Story in Chinese