Author: Fan Gang, President of CDI
Guo Wanda, Executive Vice President of CDI
Qu Jian Vice President of CDI
Editor's note: the year 2016 is the first year for the implementation of the “13th Five-Year Plan” as well as the first year for the decisive stage of building a moderately prosperous society in all respects. According to the general plan, the main work and tasks of deepening the reform of the fiscal and taxation system will be fundamentally completed in 2016. How will the fiscal and tax reform benefit enterprises and people?
Fan Gang: “In the long run, reducing enterprise cost is not yet a matter of tax abatement.”
One of the five major tasks for supply-side structural reform is cost reduction. The most important goal of cost reduction is to lower tax, lessen the burdens of enterprises, and greatly stimulate enterprises to increase investment and make innovations. Reducing enterprise cost is not yet a matter of tax abatement. It comes down to a series of transaction cost, including land and social security, and government’s review and approval procedures.
Reducing cost has to do with how to reduce labor cost in enterprises, which involves a series of institutional arrangement. If some systems fail to reduce the comprehensive labor cost of an enterprise, it will bear a high cost.
Reducing cost has to do with social security, as well. Nowadays, social security cost is also a high cost for an enterprise. If the social security is more efficient and more money can be used for it, perhaps there is no need for enterprises to pay so much social security cost.
Guo Wanda: “To achieve income growth in pace with economic growth through reform.”
The key point for a rational distribution of the national income is to tackle the problem of unfair distribution. For income distribution, we have primary distribution and secondary distribution. We need to determine the distributive proportion of all compensable factors, involving tax, and regulate secondary distribution, social security, for example. To make income distribution more rational means that the income increase can be substantially felt by people.
The individual income taxation should be reformed. Some experts have proposed to lift the threshold for taxable income and levy individual income tax based on comprehensive household income. Tax payment of high consumption or luxury consumer goods is included in the 13th Five-year Plan, which is a tax regulation measure.
Equalization of public services should be achieved. The income, medical treatment, education and basic life of the low-income groups can be guaranteed and achieved through the equalization of public services. What’s even more important is how to educate the impoverished people.
Anti-monopoly and anti-corruption should be done. Reducing the unreasonable high income of some industries, state-owned enterprises means that much more benefits should be given to the public finance and illegal income should be banned and a social regulating mechanism should be formed to make income distribution more impartial.
Qu Jian: “The reform of individual income taxation should not be limited to lifting the threshold for taxable income.”
The levy of individual income tax is a difficult problem throughout the world. It is inclined to increasingly levying tax on blue-and-white collar workers, because it is difficult to define personal income and corporate income. We cannot find a system for the levy of individual income tax once and for all, it is suggested that an assessment system for the individual income tax payment indicator should be established. A warning system should be established to record variation of tax payment of some people and enterprises, which will be gradually introduced to the national system for individual income taxation. China’s taxation will be improved.
Actually, the reform of China’s individual income taxation has two development directions. The first is a simple reform people can understand, which refers to increase the deducted amount by all means. But it fails to conform to the world practice. The second is household-based comprehensive deduction, which is universally adopted by some advanced economies including the US, Europe, and some Asian emerging economies. It varies with whether all family members are employed and whether there are children in the family. So, I think household-based comprehensive deduction of individual income tax is an alternative for the reform of individual income taxation.