Public needs to see where tax money goes

By Jin Liqun Source:Global Times Published: 2012-8-27 20:55:03

Illustration: Sun Ying
Illustration: Sun Ying


I was chatting with the head of a Tibetan autonomous prefecture one evening during my recent trip over there, when the news of the updated tax revenue flashed on the TV screen. My sensitivity to such information has been blunted ever since I left the Ministry of Finance. The news did not escape the local leader, however. "That is great news for us!" He blurted out, "We hope that the national revenue will go on rising."
His jubilation at the revenue increase reminded me of what I saw earlier that day. I visited the permanent residences for the Tibetan herdsmen, financed by the public resources. Now the herdsmen, who still have to roam with the herd during much of the year, have a warm home to come back to in winter, and to be united with their elderly, and the children, who go to the local schools.

Over the recent years, the fiscal policy has obviously left an indelible footprint on the vast hinterland areas, with rural infrastructure substantially improved. However, reactions to the taxation policy differ. Recently the rise of tax revenue has become a controversial issue.

Grousing about tax payments is universal. Everybody wants to enjoy the public goods, but nobody wants to pay taxes if they have a choice. That's quite normal.

The problem is that the critics are not just the ordinary people, but are pundits and even opinion leaders in China. Their vociferous critiques carry more weight than complaints by the man in the street.

Concern about "overtaxing" has gained ground from the fact that in 2006-11, the fiscal revenue grew at an annual rate of 21.8 percent, compared with GDP's average annual growth rate of 10.5 percent.

The general public is left with the impression that tax revenue has grown much faster than GDP, without understanding some of the technicalities behind these numbers.

Prepare yourself for something technical and a bit baffling, if you are a layperson but curious about the intricacies of the taxation system.

The bifurcation of tax revenue and GDP is inherent in the accounting practice. Tax revenue is calculated in nominal terms, whereas GDP growth is done in real terms based on a certain reference year.

In the same period of 2006-11, GDP grew at the rate of 16.9 percent in nominal terms, but only 10.5 percent in real terms, hence the discrepancy.

Furthermore, tax structure implies tax buoyancy in boom times. The value added in the manufacturing and service sectors account for over 80 percent of the GDP. With the fast growth of these two sectors, the tax revenues as a whole will certainly outpace the growth rate of GDP.

And there is no one-to-one correlation between revenue related to tax bases and GDP growth. Some tax categories have nothing to do with GDP's performance. For instance, VAT (value added tax) on properties and land use, particularly in urban areas, grows regardless of the GDP growth.

The Ministry of Finance has also mainstreamed levies and charges into the budget revenue, which used to be taken as extra-budgetary income of the local governments.

The significance of this reform does not just rest with the accounting practice. Regulated levies and charges could help prevent arbitrary collection by the local authorities and minimize corruption risks in the long run.

China's revenue-to-GDP ratio is now more or less in the same range as that of the major developed countries, roughly about 30 percent. The difference is that the Chinese government assumes far more responsibility than their counterparts in the developed world.

The Chinese government has to do more in providing public goods and services to the people, and remains the main investor in basic infrastructure and other sectors, which are normally the domain of the private sector.

Actually, the government does not seem to relish in getting disproportionately higher tax revenue. Rather, it is trying to reduce the tax burden. The threshold for personal income tax has been raised for the benefit of the lower-income groups. And the expansion of VAT will reduce the tax burden on small businesses and services.

Perhaps people should think twice before they echo the outspoken cries of overtaxing. The budget transfers have made an incredible difference in the livelihood of the people who have lived too long in marginal areas.

Budget-financed investments have sustained growth, and are playing a role in shifting the growth pattern of the economy.

But doing something good for the people is not enough. People need to see transparent and concrete achievements for themselves to appreciate the significance of a policy initiative.

Over the years, China's governmental institutions have been used to showcasing their achievements, little considering possible negative reactions. The people need a full perspective, not just some glamorous spots under the limelight.

The author is Chairman of the Board of Supervisors at China Investment Corporation.



Li Haihong, a white collar worker in Shanghai

The system in China makes life hard, at least for most consumers. We have to pay high tax, but don't have equal social welfare. I doubt whether working class people like me will have enough of a pension when we get old.

We also have to pay hidden taxes. For example, when we buy things in a store, we have to pay VAT. If it is imported product, there's custom duty as well. Why are we always paying for these items?

Wang Tao, an SOE employee in Beijing

I'm planning to buy a house in Beijing, but I need to pay tax as high as 150,000 yuan ($23,595) if I buy a house worth 2 million yuan. It's really frustrating.

Although China has raised the threshold for tax paying, it is far from practical.

The income gap in China is so wide. The wealthy should be charged more for taxes and contribute more to the country's tax income.

Guo Jia, an SOE employee in Hebei Province

The public has already voiced their discontent toward the current tax system but nothing substantial has changed.

China has a high inflation rate, and people with low income still have to pay taxes.

What's worse, some even don't know what kind of tax they're paying. Meanwhile, how the taxes are used is not transparent.

Xu Donglin, a college teacher in Xinjiang Uyghur Autonomous Region

I don't know how much tax the rich pay in China, but it must be much lower than in developed countries.

France will slap a 75 percent tax on people making more than $1.24 million a year, which will effectively narrow the gap between the rich and the poor.

We often see various rich lists. The number of rich people in China is growing.

It is the right time to introduce proper mechanisms to re-distribute wealth.

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