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The great tax debate and runaway inflation
By Yang Dingdu, Zhou Lin and Wang Pan |
April 8, 2011, Friday
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Print Edition
Print Edition
AN online posting illustrating a wealthy man going broke after paying taxes and insurance has gone viral in China and sparked a public debate.
The posting says that someone who earns 10,000 yuan (US$1,527) a month may only have 4,400 yuan left after paying various taxes and welfare insurance costs. It has been reposted more than 10,000 times on popular microblogging website t.sina.com.
The post is clear: Taxes have become a great burden at a time of runaway inflation, a sentiment echoed by numerous Internet users.
However, tax experts have analyzed the posting and say that it doesn't quite add up. According to Su Ming, deputy head of the Research Institute for Fiscal Science under the Ministry of Finance, income taxes for a 10,000-yuan monthly salary come to about 780 yuan. After subtracting pension payments, about 7,000 yuan remains, Su says.
If the entire 7,000 yuan were spent on cigarettes, the most heavily taxed commodity, the person would have to pay 3,918 yuan in consumer taxes. Even in this extreme case, the total taxes paid remain under 4,700 yuan, Su said. "The calculations are wrong. But the post shows that people are getting more anxious about taxes, which they don't actually know much about," he said.
In China, employers automatically deduct income taxes from their workers' salaries. "The upside of this arrangement is that it saves trouble for the workers. The downside is that a lot of people have little idea about how much taxes they are paying," said Huang Pingbo, an official from the tax bureau of southern city of Shenzhen.
Shenzhen issued 2.19 million "tax-paid" certificates in 2010, six times more than in 2009. The certificates confirm that the recipient has paid taxes for the year, allowing taxpayers to see just how much they're paying.
"Before 2010, those certificates were only given to places of work, and tax authorities only held those workplaces accountable. Now, everyone is taken into account," Huang said.
"Now I know how much taxes I've paid. More important, I feel respected as a taxpayer," said Zhang Shang, an employee at a local IT company.
The certificates also help prevent fraud. Some companies were found to have falsified income statements in order to give tax breaks to upper-level management while simultaneously increasing tax costs for workers lower on the ladder, Huang said.
But tax-paid certificates are not enough to solve the mystery. Corporate and individual income taxes accounted for 28 percent of China's 6.3 trillion overall tax revenue last year, while the rest came from indirect taxes, mostly value-added taxes and consumer taxes. These taxes are even harder for some taxpayers to understand.
Many Chinese consumers are not aware that they are paying taxes when they pay for goods and services. Three of these taxes - value-added taxes, business taxes and consumer taxes, are not mentioned on price tags or invoices, Su said.
A typical consumer pays 13 to 17 percent extra for every product he buys that has an attached value-added tax, according to Su. "However, the consumer sees only the price tag," he added.
In addition, consumers pay 3 to 20 percent extra for services with business taxes attached, according to Su. Consumable goods and goods that produce a lot of waste, such as chopsticks and cars, can be taxed from 3 to 56 percent of their price, Su added.
Officials from the State Administration of Taxation say the greatest difficulty is that tax authorities do not have accurate income information for all taxpayers. To get this information requires a coordinated effort between different government departments and agencies.
Most income taxes are collected from middle- and low-income workers because it is easier to measure their incomes, according to Zhang Bin, a tax researcher from the Chinese Academy of Social Sciences.
Income taxes are designed to narrow wealth gaps, but in reality, middle- and low-income earners are the most heavily taxed, Zhang said. The income tax threshold needs to be raised to make it more fair, Zhang added.
China's income tax threshold will be raised from 2,000 yuan to more than 2,500 yuan, said Li Fei, deputy director of the Legislative Affairs Commission of the National People's Congress (NPC) Standing Committee. The NPC is China's top legislative body.
The State Council, or China's cabinet, approved a plan to raise the threshold in early March. However, the plan has yet to be delivered to the NPC Standing Committee for review, Li said at a press conference on March 10.
But Chinese citizen Liu Zuo does not believe that raising the income threshold is the solution. Value-added taxes on food, medicine, clothes and other daily necessities should be cut instead, he said.
"When people consume in supermarkets and restaurants, they pay a lot in taxes. Many of them are not even aware of it. This is what burdens low-income families in real life," Liu said.
(The authors are writers at Xinhua news agency.)
The posting says that someone who earns 10,000 yuan (US$1,527) a month may only have 4,400 yuan left after paying various taxes and welfare insurance costs. It has been reposted more than 10,000 times on popular microblogging website t.sina.com.
The post is clear: Taxes have become a great burden at a time of runaway inflation, a sentiment echoed by numerous Internet users.
However, tax experts have analyzed the posting and say that it doesn't quite add up. According to Su Ming, deputy head of the Research Institute for Fiscal Science under the Ministry of Finance, income taxes for a 10,000-yuan monthly salary come to about 780 yuan. After subtracting pension payments, about 7,000 yuan remains, Su says.
If the entire 7,000 yuan were spent on cigarettes, the most heavily taxed commodity, the person would have to pay 3,918 yuan in consumer taxes. Even in this extreme case, the total taxes paid remain under 4,700 yuan, Su said. "The calculations are wrong. But the post shows that people are getting more anxious about taxes, which they don't actually know much about," he said.
In China, employers automatically deduct income taxes from their workers' salaries. "The upside of this arrangement is that it saves trouble for the workers. The downside is that a lot of people have little idea about how much taxes they are paying," said Huang Pingbo, an official from the tax bureau of southern city of Shenzhen.
Shenzhen issued 2.19 million "tax-paid" certificates in 2010, six times more than in 2009. The certificates confirm that the recipient has paid taxes for the year, allowing taxpayers to see just how much they're paying.
"Before 2010, those certificates were only given to places of work, and tax authorities only held those workplaces accountable. Now, everyone is taken into account," Huang said.
"Now I know how much taxes I've paid. More important, I feel respected as a taxpayer," said Zhang Shang, an employee at a local IT company.
The certificates also help prevent fraud. Some companies were found to have falsified income statements in order to give tax breaks to upper-level management while simultaneously increasing tax costs for workers lower on the ladder, Huang said.
But tax-paid certificates are not enough to solve the mystery. Corporate and individual income taxes accounted for 28 percent of China's 6.3 trillion overall tax revenue last year, while the rest came from indirect taxes, mostly value-added taxes and consumer taxes. These taxes are even harder for some taxpayers to understand.
Many Chinese consumers are not aware that they are paying taxes when they pay for goods and services. Three of these taxes - value-added taxes, business taxes and consumer taxes, are not mentioned on price tags or invoices, Su said.
A typical consumer pays 13 to 17 percent extra for every product he buys that has an attached value-added tax, according to Su. "However, the consumer sees only the price tag," he added.
In addition, consumers pay 3 to 20 percent extra for services with business taxes attached, according to Su. Consumable goods and goods that produce a lot of waste, such as chopsticks and cars, can be taxed from 3 to 56 percent of their price, Su added.
Officials from the State Administration of Taxation say the greatest difficulty is that tax authorities do not have accurate income information for all taxpayers. To get this information requires a coordinated effort between different government departments and agencies.
Most income taxes are collected from middle- and low-income workers because it is easier to measure their incomes, according to Zhang Bin, a tax researcher from the Chinese Academy of Social Sciences.
Income taxes are designed to narrow wealth gaps, but in reality, middle- and low-income earners are the most heavily taxed, Zhang said. The income tax threshold needs to be raised to make it more fair, Zhang added.
China's income tax threshold will be raised from 2,000 yuan to more than 2,500 yuan, said Li Fei, deputy director of the Legislative Affairs Commission of the National People's Congress (NPC) Standing Committee. The NPC is China's top legislative body.
The State Council, or China's cabinet, approved a plan to raise the threshold in early March. However, the plan has yet to be delivered to the NPC Standing Committee for review, Li said at a press conference on March 10.
But Chinese citizen Liu Zuo does not believe that raising the income threshold is the solution. Value-added taxes on food, medicine, clothes and other daily necessities should be cut instead, he said.
"When people consume in supermarkets and restaurants, they pay a lot in taxes. Many of them are not even aware of it. This is what burdens low-income families in real life," Liu said.
(The authors are writers at Xinhua news agency.)
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