Companies renew complaints about taxes, payments for social security

By Huang Ge Source:Global Times Published: 2017/1/17 22:13:39

Government committed to cuts, streamlining procedures: experts


Growth of China's taxation revenues from 2014-16

Growth of China's taxation revenues from 2014-16



Taxpayers report their taxes at a local taxation bureau in Shangrao, East China's Jiangxi Province in November 2016. Photo: IC

Taxpayers report their taxes at a local taxation bureau in Shangrao, East China's Jiangxi Province in November 2016. Photo: IC

The corporate tax burden is once again the subject of heated discussion as many domestic manufacturers are complaining that they have paid more in taxes and duties than they record as profit.

Experts said Tuesday that China's corporate taxation system should be viewed from a certain perspective, and critics should remember that the government is trying to cut business costs by streamlining administrative procedures as well as reducing tax.

During the fifth session of the 12th Shanghai Committee of the Chinese People's Political Consultative Conference, which kicked off over the weekend, Lin Kaiwen, president of Shanghai Kaiquan Pump (Group) Co, said that last year, his company paid four times as much tax as it made in profits, domestic financial news portal yicai.com reported on Monday.

"About a decade ago, taxes and duties paid by my company were 120 percent higher than profits," Lin was quoted as saying.

Lin said that labor costs have risen faster than productivity in the past 10 years, leading to a  decline of corporate profits.

Meanwhile, the social security contributions for employees could be as high as 40 percent of their salaries.

Many members also told the session that heavy taxes are hindering companies' growth, especially investment in research and development, the report said.

The corporate tax burden actually has two parts: the statutory tax rate, which is "always within a reasonable range," and other fees like social security, Jiang Zhen, a deputy research fellow from the Chinese Academy of Social Sciences, told the Global Times Tuesday.

Jiang said that the second part of the tax burden varies among companies and it is assessed based on specific situations.

Wang Surong, a professor from the University of International Business and Economics, agreed, saying that the two major taxes that domestic companies face are value-added tax (VAT) and income tax, but the larger burden comes from social security contributions.

"For instance, an employee in a company based in Beijing must pay 22 percent of his monthly salary into his social security account, while his company must pay the equivalent of 42 percent, which is higher than the contributions in foreign countries and regions," Wang told the Global Times on Tuesday.

In  bid to reduce the corporate tax burden arising from social security, the government cut the payment rate of companies' retirement insurance and unemployment insurance in 2016, the Xinhua News Agency reported on Monday, citing former finance minister Lou Jiwei.

Lou was quoted as saying that China will be able to further lower the retirement insurance payment ratio after some State-owned capital is transferred to the national social security fund, which was required by the government.

Given the sluggish real economy, many domestic companies are calling for a reduction of the VAT rate for the manufacturing industry, which is 17 percent currently, the yicai.com report said.

In May 2016, China replaced the business tax with the VAT as part of a broader reform package.

Jiang said because of the VAT reform, it appears that the corporate tax burden is likely to decline. "The VAT reform will benefit all industries in China."

Wang said that a lower VAT rate could ease the burden of manufacturers in China and the VAT tax rate is expected to drop from 17 percent to 12 percent or 13 percent.

National Development and Reform Commission Chairman Xu Shaoshi told a briefing in Beijing on January 10 that China's overall tax burden is not high.

"I still believe that the Chinese market is competitive … and we care a lot about domestic companies' demands."

Xu said last year, reform moves reduced the total tax burden by 500 billion yuan ($72.6 billion).

China's corporate income tax rate is 25 percent, which puts it in the middle to high ranks worldwide, Wang said.

She noted that the income tax rate for companies based in provinces that are included in the country's western development strategy is only 15 percent.

Governments should undertake comprehensive research into companies' operating conditions to develop more tailored policies to reduce taxes, because the position of start-ups is very different from long-established companies, Jiang said.

Many problems remain for companies, including the high land cost, the weakening labor cost advantage and narrower corporate profit margins, Lou said in the Xinhua report.


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