By Xi Si (席斯)
Issue 570, May 21, 2012
News, page 5
Translated by Zhu Na
Original article: [Chinese]

The Economic Observer spoke to Gao Peiyong, who is Dean of the National Academy of Economic Strategy at the Chinese Academy of Social Sciences (CASS). His interview has been edited for length and clarity. 

The Economic Observer: Looking at China's current economic development, fiscal situation and the tax burden of enterprises and individuals, how much do you think tax should be reduced?
Gao Peiyong (高培勇): So far, no specific target has been set. There’s no answer to exactly how tax should be cut. It’s the biggest challenge that we’re facing.
In 2012, the tax department put forward a total of six tax-cutting measures. We’ve done a preliminary calculation, and if these six policies are implemented, the tax reduction will amount to less that 100 billion yuan.

 
EO: From a structural perspective, what aspects do you think we ought to understand better?
Gao: To begin with, take two figures.
In 2011, 75 percent of China's tax revenue came from indirect taxes. That’s not appropriate.
It means that more than 7 trillion yuan of the 10 trillion yuan fiscal revenue came from taxes that are directly linked to prices – this has a huge impact on pricing and means that Chinese-made goods are more expensive on the domestic market than overseas.
Here’s the other figure: in 2011, 92% of taxes were levied on businesses whereas personal income tax only accounted for 8 percent. Chinese businesses have a much bigger tax burden than those in other countries.  
Looking at these two figures, you can see that tax has a big impact on prices and the costs of Chinese businesses. Both these effects impede China’s economic development.
China’s businesses need to expand their presence around the world, and they need to sell their goods around the world, but the country’s tax system is very different from other countries’, and that affects how our enterprises operate abroad.
Therefore, I think two changes are necessary to optimize the tax structure: firstly, indirect tax shouldn’t be the main component of taxation; we should pay attention to both indirect taxes and direct taxes; secondly, we should create a balance between corporation tax and income.

 
EO:   How do you think the tax department should promote the change from indirect tax to direct tax?
Gao: I think there’s a serious shortcoming in China’s approach to tax. Businesses and officials are always unwilling or reluctant to give the public the full details about tax.
For example, they won’t say what proportion of the price of a mobile phone is paid as tax.
In many countries, the tax component of a product’s price is listed separately to show consumers, for example on a $100 shirt, it’s indicated at the bottom of the tag that more than $10 goes towards tax.
I’ve asked many companies whether it’s difficult to separate out the cost of taxes? They say ‘not at all’.
If they refuse to break out the tax on a cellphone, then they’re even more reluctant to indicate the tax on cigarettes and alcohol, where it represents more than 50 percent of the price.
There’s a misunderstanding. People think that personal income tax is the only tax they pay, but actually you’re paying tax whenever you go shopping, eat out or watch movies.
We need a real meaningful tax campaign, not about tax consciousness, but about taxpayer consciousness. Tax consciousness only shows people that they have a duty to pay tax; taxpayer consciousness also shows people what rights they enjoy after paying taxes. Currently, many people only care about the amount of tax they pay.
Everyone wants lower taxes, but if the tax burden was zero, the government wouldn’t be able to get anything done and we need it to provide public services.
Every year the government collects 10 trillion yuan in tax, and spends 10 trillion yuan. That fact alone isn’t important – what matters is how much each person contributes to that 10 trillion yuan.

Source of front-page image: CEIBS