Lowering taxes for struggling firms
 Updated: 2004-01-14 08:55

The State Administration of Taxation (SAT) is ready to make some new moves in 2004. Among other things, it will start some pilot programmes in the old industrial belt of the Northeastern provinces, while extending some tax breaks to projects to generate new jobs, as the SAT Director Xie Xuren and his colleagues explained at a press conference yesterday in Beijing.

Certain costs, such as for equipment purchases, will be deducted from the corporate value-added tax for industries including machine-building, petrochemicals, steels and metals, auto making, shipbuilding, high technology and the processing of farm products in Northeast China, to support local business revitalization.

Tax breaks will also be extended to companies with more than one-third of their workers recruited from those discharged during the restructuring of State-owned enterprises (SOEs). Flexible measures are also being made available for small- and medium-sized enterprises which can only recruit a smaller number of the SOE lay-offs.

However, none of these proposed moves will cause a major change in the overall tax system.

They are all minor adjustments. Having grown dramatically in line with the GDP, China's governmental revenues have risen to the unprecedented record of 2 trillion yuan (more than US$240 billion) in 2003.

And there is no sign of the momentum abating, as the overall economy is on its fast track of growth. The number of places where tax cuts will be implemented is rather small, as compared with where the tax base will continue to expand.

All the government initiatives to support economic growth, especially where it used to lag behind other regions, will unavoidably be funded by public money, in one way or another. A direct tax cut is only one way of doing it.

Sometimes it is not even the most effective way of doing it, unless it can provide incentives to business growth. No government can afford to indulge using it as a frequent policy, even if it is proposed with good intentions.

Since last year, many governmental policies have been introduced to emphasize human values, or the non-economic side of ongoing development programmes. The central government has repeatedly called for efforts to balance economic and social development.

Social development unavoidably requires greater spending. And one of the things that those campaigning for various social policies would easily think of is to demand more tax cuts.

To further complicate the situation, as China's economic reform is still going on and its basic economic structure and financial system are shaping up, many tax laws and policies are still awaiting approval by the national legislature.

Talking about the steady operation of their system is therefore too much of a luxury for Chinese tax officials. They will have to be prepared for more changes, as there inevitably will be.

For the time being, in order to help the nation maintain a largely stable financial system, officials would certainly prefer to see fewer, rather than more, tax cuts. Many of the major changes that were once touted by the domestic press, such as a rise in the starting levels for income tax, are, as a result, not on the 2004 work calendar of SAT officials.

The public can do nothing but agree with them that there is no point of pursuing a tax reform in a hasty manner "such as whether to potentially increase or to reduce its tax payments.

While there is plenty of time for lawmakers to debate and revise the nation's tax laws at the National People's Congress, what tax officials should do is continue replenishing the government coffers and focusing tax cuts to where they are truly needed.

(China Daily)

Close