China’s Taxes Need Re-structuring in 2012: Li Keqiang

Chinese Deputy Party Secretary Li Keqiang has stressed the importance of increasing domestic demand in the coming year, amid a gloomy global economic outlook. Li acknowledges that to do that, taxes must be lowered and re-structured.

Li gave his comments at the annual Work and Finance conference that ended on Monday in Beijing. He spoke of a more flexible fiscal policy and structural tax reductions, in order to improve people’s livelihoods.

A professor at the Tianjin University of Finance and Economics, Li Weiguang, says that in addition to direct taxes on people’s salaries in China, many indirect taxes get passed down the supply chain that get charged to the consumer—making products very expensive. He says small businesses are also struggling under the current tax structure.

[Li Weiguang, Tianjin University of Finance and Economics]:
“70 percent of our country’s tax revenues are already made up of direct taxes, so why are the prices of products on the market so high? Apart from the inflation factor, there is also the issue of the tax burden. Indirect taxes are passed on layer after layer and are finally reflected in prices of products on the market. What is more, our industrial and business taxes are high, so we see many small businesses in difficulty, and in many places small companies cannot stay in business.”

Authorities do seem to be reacting to these views, pledging in October to raise the tax threshold for paying business tax and scrapping 22 different administrative fees for small businesses until the end of 2014.

The Chinese regime has come under scrutiny in the past for wasting large sums of money on the expenses of Communist Party officials. Shi Zhengwen from the China University of Political Science and Law says controlling these expenses is another factor in freeing up more funds to directly benefit Chinese citizens.

[Shi Zhengwen, China University of Political Science and Law]:
“Extra tax income should also be incorporated into the budget and used to better people’s lives. It shouldn’t be used for the government’s own consumption. The government’s expenses should be controlled to increase the effectiveness of the use of funds.”

Communist Party officials claim that in 2012, more money will go to low-income earners, social security, affordable housing and medical services.