Tax cuts are a priority to inject more vitality into the economy

AT A RECENT FACE-TO-FACE MEETING between entrepreneurs and central government officials in Beijing, Jiang Xipei, chairman of Far East Holding Group, a technology company headquartered in Yixing, East China’s Jiangsu province, said that the biggest burden on enterprises is the institutional costs they have to bear, so the government must ease the tax and fee burden on enterprises. Beijing News comments:

Jiang’s brief remarks to the decision-makers in the State Council, China’s Cabinet, have resonated with many of his peers, which has led to a public debate on the direction of the government’s macroeconomic policies — support largescale infrastructure construction or cut tax to relieve the real economy’s operating burden.

In fact, both policies are needed in the current circumstances. But reducing the tax and fees paid by enterprises should be a priority, because this would effectively stimulate their vitality, lessen fears of inflation and contribute to a healthy business environment. More important, China still has considerable capacity and space in which to lower tax.

Despite the government’s repeated avowals of tax reduction, its revenue from tax has increased 14 percent year-on-year from January to July, which mainly stems from the tax structure after reform that replaced the business tax with value added tax, which makes it harder for upperstream enterprises to evade tax.

Statistics show that indirect taxes, including value added tax, consumption tax and tariffs, accounted for 53 percent of the overall tax revenue last month. A major characteristic of the indirect taxes is that they are calculated on the basis of present prices. So a surge in prices directly increases the government’s revenue from indirect taxes, adding to the real economy’s costs.

Hopefully, the entrepreneurs’ cries can prompt the government to further lower the value added tax rate, revoke the stamp duty on economic contracts, which does not affect the overall revenue of the government too much, and raise the threshold for collecting personal income tax.