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Economy

People's Republic Of Taxes: China Dusts Off “Dormant” Taxes To Public’s Chagrin

In the past few years, the Chinese government has decided to dust off quite a number of “dormant” taxes, including those levied on property and personal income, as well as a local education surcharge, all signs of both the causes and effects of its high-o

A street scene in Nanjing, China (pickinjim2006)
A street scene in Nanjing, China (pickinjim2006)

Worldcrunch *NEWSBITES

BEIJING - Whether you call them Capitalists or Communists, Chinese people don't like taxes either.

In the past few years, authorities in China have decided to dust off quite a number of "dormant" taxes, including those levied on property and personal income, as well as local education surcharges.

These taxes and charges, which had been in "suspended animation" for years, have existed since China's general tax reform in 1994, or even earlier. But for a variety of administrative reasons, individuals and enterprises had been exempt from imposition until now. The levies now set to be imposed include a property tax, a sliding land-value tax, certain categories of income tax, a second house transaction tax, and a local education surcharge that had originally been applied in only a few cities.

Indeed, in China too, taxes are anything but popular. But the changing Chinese society and booming Chinese economy add other elements to the debate. For instance, when the Real Estate Tax Regulations were promulgated in 1986, most Chinese urban residents were living in public housing and did not own their houses. But now that individual home ownership is common and prices rising, the government has decided to collect property tax. Shanghai and Chongqing took the lead last year as pilot cities for imposing the tax, with it expected to soon be collected nationwide.

From the government's point of view, the property tax is aimed not only at becoming local governments' major source of fiscal revenue in the future, but also a way of inhibiting housing prices from soaring.

Gao Peiyong, the Director of the Finance and Trade Department of the Chinese Academy of Social Sciences pointed out that the debate around the 1991 tax reform foreshadowed the current push to revive the dormant taxes.

At that time, China's actual tax collection rate was only around 50% and the efficiency of collection was very low, so the government set aside a lot of space for taxes to grow. In other words, "if you want to reach a 500 billion yuan target, you have to build a 1 trillion yuan tax collection shelf," Gao explained to the Chinese financial journal Caixun.

The Chinese authority's logic for bringing back these taxes is that the laws and regulations were well established before, but the conditions were not ripe for implementation, so it's only normal to impose them now.

From the public's point of view, it looks very different.

At a time of a weakening economy and tightening of local governments' financial resources this discretionary space is now the foundation of tax abuse. Practices may be legally based, but it does not necessarily mean they are reasonable. Deeper injustice could hide underneath procedural justice.

A lot of these so-called dormant taxes are in reality newly introduced burdens which should normally be first debated at the National People's Congress, which has not happened.

From January to August 2011, China's national fiscal revenue has increased by 28.3% relative to the same period last year, up to 6.488 trillion RMB.

Today, China's state revenue has an annual growth of one trillion RMB and its total revenue will go beyond 10 trillion RMB by the end of this year. Though this is an inevitable result of its economic growth, it nonetheless is a reminder of the accelerating flow of wealth into the government's hands.

Forbes Magazine, which publishes a "Tax misery index," recently ranked China as No. 2 in world, just like the size of its economy. The People's Daily, the official Chinese mouthpiece, immediately refuted the conclusion.

Though Forbes' argument may lack a solid scientific foundation, the tax burden and the weight of resentment that the Chinese people feel are very real.

Read more from Economic Observer

Photo - pickinjim2006

*Newsbites are digest items, not direct translations

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