The income gaps among urban residents are now more significant
than the disparities between urban and rural residents. This has
become the main source of polarization in China. An efficient
taxation system could help reduce the gaps between the rich and the
poor, according to experts at the International Symposium on Public
Finance Reforms and China's Economic Development that concluded
Sunday.
It was commonly believed in the past that the income gaps in
China were mainly between city and countryside residents, said
Zhang Xin, dean of the Public Management School at Shanghai
University of Finance and Economics. Since 2002, however, with the
growing proportion of urban population, plus the migration of
people, both rich and poor, from rural areas into cities, the
income gaps among urban residents have become bigger than those
between city and countryside residents.
"The present taxation system in China only uses its function to
increase national finance revenue. Its other functions, like the
adjustment of income distribution, have been neglected to some
extent," said Gao Peiyong, deputy director of the Institute of
Finance and Trade Economics with the Chinese Academy of Social
Sciences (CASS). "So reforms to the current taxation system have to
be carried out to exert its role in this field."
It is the individual income tax system that now takes the role
of adjusting income distribution, but it is not powerful enough.
Wang Zhenzhong, deputy director of CASS' Institute of Economy
Research, pointed out that the present Individual Income Tax Law is
not yet perfect for closing the gap between the rich and the
poor.
The amendments to the law, which were made at the beginning of
this year, have only raised the basic line of taxation. Wang
suggested that China should learn from the British practice, for
instance, to increase deductions for dependants, disabled and the
like.
A recent survey by the State
Administration of Taxation showed that the increasing speed of the
taxation gaps between different areas was faster than that of GDP
disparities between them, said Xu Shanda, the administration's
deputy director.
One of the reasons is that the payer and receiver of the tax are
not the same local governments, according to Xu. "Some local
taxation doesn't become the financial revenue of that local
government; instead, it's part of the revenue of another local
government. That is to say some local governments benefit from the
taxation of others. It's not reasonable."
Xu said that a typical case is the construction of a railway
between Datong and Qinhuangdao. The railway does not pass through
Beijing. However, since the construction company was registered in
the city business tax had to go there. This was unfair to the two
local governments because they had to relocate the residents along
the line and take care of security after completion. They spent
money and time but didn't get what they deserved.
The imperfection of the finance and taxation systems caused the
difference in tax source and revenue. Moreover, the commonly-shared
tax income takes too large a portion of the whole tax income. In
China, the commonly-shared tax income includes VAT, income,
business and consumer taxes. As an example business tax goes to the
local government where a business is actually registered. If the
work place is different from the registration location the
government of the work place cannot collect any business tax.
One of the functions of the financial department was to narrow
the above gaps. Xu pointed out that the way forward was to
reconsider the method of the second distribution of taxes between
the central and local governments adopted in 1994. He suggested the
local tax source be first turned into tax revenue before being the
second-time distribution between the central and local
governments.
The symposium was held by the School of Economics at Peking
University on June 23-25, 2006.
(China.org.cn by Xu Lin, June 27, 2006)