The State Administration of Taxation issued a document recently saying taxes should be levied on employees' perks, including traffic and communication allowances. The move is not only ill timed, but also bad for the tax department, says an article in Shanghai Morning Post. Excerpt:

By levying taxes on employees' perks, the tax authorities have created a storm, with many people saying the move is "ill timed" because it will hurt taxpayers in these times of global economic crisis.

This indeed is a wrong time to increase taxes. Since domestic consumption and private investments play a vital role in stimulating economic growth, major economies have in succession cut taxes. China, too, should adopt a strategy to restore wealth to the people, as stated by the State Council and as a complement to its impressive economic stimulus package. Yet the tax department has chosen the opposite path. Why does it turn a blind eye both to the State Council's development strategy and social opinion?

It is well known that the performance of the tax authorities rests ultimately on tax collection. Falling consumption among the people because of the economic crisis forced enterprises' profit to shrink and/or revenues to drop. Hence, they paid less tax.

The fall in tax collection prompted the authorities to shift their attention to individual taxpayers. True, higher individual tax will increase their collection but it will cause consumption to drop further. What the authorities have failed to see is that falling consumption levels are likely to cause further drop in enterprises' profits that account for the largest percentage of tax collection.

The solution to tax authorities problem lies in reducing individual tax and helping raise consumption.

(China Daily September 25, 2009)