site: HOME > > Economic > News > Economics
Tax Reform in 2008

From News, page 3, issue no. 347, December 24th, 2007
Translated by Zuo Maohong
Original article:

Chinese Minister of Finance Xie Xuren has outlined the framework for upcoming taxation reforms in 2008.

Among the reforms;include the revision of Provisional Regulations on Value Added Tax (VAT) and the Individual Income Tax Law, which has undergone a revision two years ago, is to be adjusted yet again.

Some new taxes,;such as;environmental tax and social security tax, have also been raised for the first time at the annual National Finance Conference chaired by Xie on December 19, 2007.

In addition, Resource Tax revision and the upcoming new Enterprise Income Tax Law are also keenly anticipated.

Value Added Tax: The First Adjustment Ever
VAT is considered one of the priorities for tax policy makers in 2008. VAT will undergo revision for the first time since it was promulgated 14 years ago.

"The revision is likely to include input VAT deductions," says Ni Hongri, deputy director of Development Press of China specializing in finance and taxation.

At the recently concluded conference, Xie had mentioned that reforms in VAT would only be carried out on trial in industrial bases in the northeast and central China.

Commenting on the announcement, Ni agrees that a nationwide implementation of the reform would be hard to realize. He believes that;the government;fears major changes in VAT would further stimulate over-investment, thus jeopardizing macro intervention measures to calm an overheating economy.

"The government’s main concern is not a decrease in tax revenues. Judging from the outcome in regions that have been introduced to VAT on trial, the reduction in revenue is not as huge as initially anticipated," Ni adds.

The existing Provisional Regulations on Value Added Tax was promulgated by the State Council on December 13th, 1993 and took effect on January 1st, 1994.

As the country progresses through opening-up policy, new problems arise and the VAT regulations need an overhaul to better fit present circumstances.

"Laws on taxes in China lack stability and endurance in nature. Many major taxes, such as VAT, are guided by provisional regulations only. This is no longer effective or suitable," says an academic who wishes to remain anonymous.

While preparing for the revision of the provisional regulations, the standing committee of National People’s Congress (NPC) is also working on VAT legislation. However, whether to write such a law will be decided by the annual NPC in March. If approved, a detailed five-year legislation plan is to be studied out.

Personal Income Tax Reform: Almost Settled
The Minister had stressed on the need for reform in personal income tax to redistribute wealth more effectively. Just before the end of 2007, the government has announced raising the personal taxable threshold to 2,000 yuan from 1,600 yuan, effective from March.

Ni explains that the rising Consumer Price Index (CPI) has caused the real income of those in the medium and low income bracket to drop drastically, adding the increase in threshold would help to reduce their tax burden.

Apart from a higher threshold, the amendment will also require tax payers in the high income bracket to do self-assessment and file their income tax returns.

The current Individual Income Tax Law divides the scope of personal incomes into many categories. For example, incomes from wages and salaries are levied separately, and differently, from incomes of remunerations for services. The confusion and overlapping of categories have partly led to tax evasion from those in the higher income bracket.

The latest tax reform looks at a policy to integrate all the categories under one levy structure. Such a proposal was first raised in the third plenary session of the 16th National Congress of Communist Party back in 2003.

Deputy director of Institute of Finance and Trade Economics Gao Peiyong points out that the requirement for those in the 120,000 yuan and above annual income bracket to do self-assessment income tax returns, a move initiated in January 2007, is actually a transition to integrated levy.

Environmental;and Social Security Taxes: On the Way
The need for a tax law concerning the environment has become more pressing in view of the pace of industrialization and development in the country. The Chinese government is resolute to reduce pollutants emission by 10 percent by 2010, and it is also campaigning for energy conservation.

Thus, feasibility study for such a law has started some time ago but it is the first time the Ministry of Finance has earmarked it as a priority task for 2008.

An expert engaging in the research on environmental tax discloses that the State Environmental Administration has wanted to draft an independent tax on environment, whereas taxation professionals have suggested that the levy to be added as a subordinate to consumption tax.

The experts argue that by attaching environmental levy on an existing tax would help cut the bureaucratic approval procedures, thus allowing its implementation on a sooner date.

As for Social Security Tax, it is already in its experimental phase. Presently, social security premiums in 19 provinces are directly paid to local taxation departments, which later appropriate funds to social security departments and agents. In other regions, however, such premiums are still collected and managed by social security departments.

As corruption cases involving social security funds frequently occurred in recent years, there have been calls for the enactment of social security tax law, so that premiums can be collected uniformly and supervised closely.

Related Stories


Comments(The views posted belong to the commentator, not representative of the EO)

username: Quick log-in

EO Digital Products

Multimedia & Interactive