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Expert backs preferential tax policy

By Bing Lan (China Daily)
Updated: 2006-07-06 09:44

An inheritance tax with a low threshold could discourage people from putting their assets into productive use, he said.

Auerbach said China's general tax level, at about one quarter of its gross domestic product, was not high.

In the United States, it is about one-third and in some European countries it is as high as 40 per cent.

Auerbach said China's urbanization would mean a bigger tax base.

On the other hand Chinese people will have a higher standard of living and so will demand more public services, which require increased government spending.

"I am sure China's share of GDP accounted for by taxes will grow," he said.

Auerbach said China's taxation system, which underwent an overhaul 12 years ago, is less in need of reform than in many other transition economies.

"Many other such economies rely a lot more on corporate income tax and tariffs, and a lot less on value-added taxes," he said.

Value-added tax is typically recommended for a transition economy. China relies heavily on this tax.

"In some ways, China's tax system is closer to where you want to be than in many countries."