China?will introduce a new series of tax incentives to
encourage reemployment of unemployed workers displaced from
state-owned enterprises (SOEs) during corporate restructuring.
Hao Zhaocheng, deputy director of the State Administration of
Taxation (SAT), said Tuesday the government will encourage
unemployed people to establish their own companies by offering them
three-year exemptions from taxes for related to business urban
construction, education and personal income.
The government will also raise the thresholds for levying
business and value-added taxes for such individuals as well, tax
officials said.
For companies which help create jobs for the unemployed people,
the government will offer tax favors including cuts on business
taxes and corporate income taxes based on the actual numbers of
people they have employed, he said.
According Xie Xuren, director of SAT, starting this year, the
government will also implement a new value-added tax policy for the
eight major industry sectors in China's northeastern provinces,
known as the iron belt and one of the oldest and most difficult
industrial areas in the nation.
The eight industries, which include oil and car manufacturing
among other sectors, can claim value-added tax deductions when
buying new machinery equipment.
Based on the experiences gained from 2004, the government will
implement the new policy across the country later, he said.
Although the moves will lead to losses in tax revenues, these
tax incentives are important functions of the country's tax system,
analysts said.
"A good tax system shouldn't be attempted to collect more in
taxes year after year," said Zhang Peisen, a senior researcher with
SAT's Taxation Research Institute. "It should instead help balance
society's responsibility and its need to stimulate economic
growth."
In this sense, the central government's decision to seek a
steady process in reforming the existing tax system, which was
adopted in 1994, is a wise move, Zhang said.
China is now practicing a production-based, value-added tax
system. Under the system, fixed assets are classified as consumer
goods and are subject to taxes. Enterprises cannot claim tax
deductions for purchase of fixed assets such as equipment and
machinery.
The system places a heavy burden on enterprises wanting to
increase their fixed assets investment, especially for enterprises
that are intensive in their use of capital and technologies. The
system is considered as having posed a hurdle to the nation's
economic restructuring.
"Experimenting with the new value-added tax policies suggests a
new round of tax system reforms in China has been kicked off,"
Zhang said. He added China has entered the best period to reform
its old tax system.
The Chinese economy should continue to grow at more than 8 per
cent in the coming several years, while the consumer prices will be
at less than 5 per cent before 2008, he said.
The stable increase of tax revenues since 2000 also lay a solid
foundation for the reform, Zhang said. The country's tax revenue,
which grew 250 billion to 300 billion yuan (US$30.1-36.1 billion) a
year since 2000, will continue to grow at a rapid pace in the
coming years, he forecast.
China's tax revenue exclusive of tariffs and agriculture tax
rose a year-on-year 20.3 per cent to 2.05 trillion yuan (US$246.5
billion) last year, according to Xie.
In 2004, China will deepen the tax and fee reform in its rural
areas to further reduce the financial burden of farmers, Xie said.
Except taxation on tobacco, the government will eliminate the tax
on special agriculture produce across the country, he said.
The government will lower the average agriculture tax rate,
which stands at about 8.4 per cent now, by 1 percentage point next
year, he said. It will also make full preparations for the reform
on enterprise income tax law and personal income tax law this
year.
China is now practicing dual-track enterprise income tax
policies for domestic and foreign-funded companies. The income tax
rate for domestic companies was 33 per cent, while that for
foreign-funded companies stood at 17 per cent.
"The country should implement the national treatment for
domestic and foreign-funded companies, because they should compete
on an equal footing," Zhang said.
In recent years, personal income tax has become a hot topic,
because the threshold for taxation which stands at 800 yuan (US$96)
was considered probably too low.
The present personal income tax rates vary in 11 categories
based on income sources -- and this system does not have much
control over an individual's total annual income.
Taxation is aimed at people with high-level incomes to promote
economic development and social stability.
As a result, the current 800-yuan (US$96) starting point for
taxation on monthly income needs to be raised, Zhang said.
Personal income taxes should also be based on a combination of
various means of incomes, including bonuses and dividends, instead
of merely salaries like today.
Meanwhile, the personal circumstances of an individual, such as
supporting children and the elderly, may be considered before the
tax is computed.
(China Daily January 14, 2004)