BIZCHINA> Review & Analysis
Simplify tax regimes
(China Daily)
Updated: 2007-01-23 10:17

A report released last November by theWorld Bankand PricewaterhouseCoopers, a leading global consulting firm, ranked China's tax burden as the eighth highest in the world. In response, an official from the State Administration of Taxation (SAT) was recently reported to have firmly refuted the conclusion.

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The World Bank's findings seem to contrast with the reality of the Chinese economy. Had the country's tax burden been so heavy, it would be unimaginable that the economy could have grown so rapidly for so long and foreign investors have competed so hard to rush in.

Clearly, it is easy to question the methods outsiders used to assess China's true business tax burden. Albeit, it is not so easy for the domestic tax authorities to come up with an alternative but more convincing answer.

It is reassuring that the SAT is said to have begun its own research on China's tax burden.

As the country's tax revenues have kept increasing much faster than economic growth in recent years, it is high time for the tax authorities to thoroughly examine the real sources of revenue growth. In the absence of a substantial increase in tax rates, it becomes increasingly doubtful to attribute the huge growth of tax revenues in recent years mainly to enhanced revenue collection.

Whether or not the World Bank report is correct about China's actual tax burden is arguable. But its emphasis on simpler tax regimes and more transparency is definitely necessary.

Straightforward tax administration and a simpler tax collection process are fundamental to an effective tax system. And such a tax system is particularly important for China as the Chinese government is tapping into the national coffers to narrow the development gaps between various regions and between rural and urban areas.

Though the recent rapid growth of tax revenues apparently makes it less urgent for the country to simplify its tax systems, China's long-term need to redistribute the country's wealth more fairly entails immediate efforts to make its tax regimes more efficient and easier to comply with for all taxpayers.

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