Mainland tax reform must go deeper: Deputy
Govt urged to keep investors with better incentives
Tax reform efforts on the Chinese mainland need to be stepped up to cushion the spillover effects of the tax cuts in the United States, a Hong Kong deputy to the National People’s Congress, the country’s top legislative body, has urged.
Andrew Yao Cho-fai, who’s also chairman of Hong Kong Shanghai Alliance Holdings, said the mainland has been making changes to its tax system, but the measures aren’t strong enough.
In the latest Government Work Report, Premier Li Keqiang pledged to further lighten the tax burden on businesses this year.
Li said the government will reform and improve the value-added tax, prioritizing cutting rates in the manufacturing and transportation sectors, and raising the threshold for annual sales revenue for small taxpayers.
More than 800 billion yuan ($126 billion) in taxes will be reduced for businesses and individuals this year, Li promised.
Yao said most of the taxes on the mainland are indirect taxes at present. Indirect taxation, which affects mainly enterprises, involves products or services that are taxed once they are sold regardless of the costs and profits of producers or operators.
Yao cited one of his property projects in Shanghai as an example. “The tax I have to pay takes up about 80 percent of my profits,” he told China Daily in an interview during the annual two sessions in Beijing.
“The economic activities produce a lot of profits that are all being taxed. This is a disincentive for more economic activities. We need to think of how to reform the value-added tax.”
As for individual income tax, which comes under the direct tax category, it takes up only a small share in the mainland’s tax system, accounting for 6 percent of its fiscal revenue, while the percentage in Hong Kong and the United States is much higher — 25 percent and 45 percent, respectively — said Yao.
“Enterprises’ investments have a lot to do with tax policies,” he stressed. With tax cuts in the US, more enterprises, which invest on the mainland, could move to the US.
The US House of Representatives and the Senate passed a tax cut bill in December last year. It’s believed to be the first drastic tax reform in the past three decades.
The package, which provided for a cut in the corporate tax rate from 35 percent to 21 percent, plus a 15.5-percent tax rate levy on repatriated cash earnings by US companies, drew global attention as it could have a profound spillover effect worldwide by affecting global capital and trade flows.
Yao warned that the mainland’s manufacturing industry with low added value is expected to be the hardest hit.
“The low-end manufacturing industry has already moved out of the country to places where production and labor costs are lower, like Vietnam and Cambodia. High-end manufacturers, which have high added value in their products, can still keep their profits in the market amid the change,” he said.
“But, for those in the middle, cost and supply chains are both essential for their survival. Their cost advantage in staying on the mainland will be significantly undermined following the US move. They’re most likely to move to the US.”
The mainland’s manufacturing industry with low added value is expected to be the hardest hit (by the US tax reform).”
Andrew Yao Cho-fai,
Hong Kong deputy to the NPC