Home Page/Public Lecture Series/Tax abatement is not all for burden relief and more importantly, is to reduce the burden beyond tax
Tax abatement is not all for burden relief and more importantly, is to reduce the burden beyond tax
Author： Source： Date：2017-08-22
On August 22nd, member of member of the national committee of CPPCC, chief economist of China Academy of New Supply-side Economics and former head of Institute of Financial Science of Ministry of Finance Kang Jia joined the Public Lecture Series. His speech was on Financial and Taxation Reform for Modern National Governance
◆As for the reform of tax and finance, it is emphasized to take the road of modern national governance. The “administration” as we talked usually in the past emphasized the control of government at different levels from top to bottom whereas “governance” mostly stressed the diversified government ad non-government subject, to carry out more and full interactive at the same level, in this way, could the administration and self-administration, organization and self-organization and control and self-control be better combined to release all the potential powers and mobilized all the enthusiasm to emancipate the productive forces. Obviously, this is the vital innovation.
◆Government is not to be a main actor and the market is decisive, which is the foundation for us to further emancipate our thoughts. As a matter of fact, it is much more complicated than what we have described. Market is not to determine all the occasions and all the matters and many affairs shall be led by the government, such as inherence to social equality and fairness, overcoming the market defects and supporting the vulnerable groups, and giving the guidance on industrial policies and technological and economic policies. Such guidance requires better mechanism compatible with the market. This is very challenging. The government could cooperate with the companies and establish the partnership with them to joint make the construction and development, which demonstrate the proper way to deal with the relationship between the government and market in the modern market system. It is an innovation as well as a challenge.
◆Seemingly, the state owns the final ownership of the state-owed assets administration system and could participate in the profit sharing of the state-owned companies. Why could he become the representative of the ultimate ownership of the state-owned assets? In the final analysis, firstly, it is about an issue of controlling finance by power. What is the act of exercising administration by finance? It is to make use of the distributable social products such as the public resources and finance to perform the functions that a government should.
If a country wants to be modernized and seeks for modern state governance, such distribution system in finance must be modernized and this is the inevitable logic. Its meaning and significance for the whole situations is to view finance out of finance system as we talked about for many years. Finance is not the public resource allocation that a few financing professionals shall deal with by themselves. This is why the reform direction to build up the concept of public finance a few years ago and establish the modern finance involves the system optimization and how to eliminate the system shortcomings. It inevitably involves the economic reform as well as the other supporting reform, even the reform of political system and the whole framework. Only in this way, could China truly solve the historical task of how to realize the modernization.
◆The budget reform requires transparency, and then the right of information, the right of inquiry, right of suggestion and right of supervision. Seemingly, it is an issue of technical transparency, followed by controlling finance by politics and exercising political power with finance and it is an issue with system, rather than the trivial thing. China has made somewhat progress; however, it still shall take a long way to reach the ideal level. The central government has the explicit attitude on it. At present, the budget shall be publicized on website and it is expressly required to provide more detailed information and the local government shall follow such principle. If there is no positive and feasible design regarding the reform of political system, whether should we strive to the budget transparency as required by the central government, and whether there should be a sound interactive between budget system and budget and the public to further take the progressive budget road with Chinese characteristics? This is what we should think from the constructive angle.
Tax reform relates to every company and natural person and it is also an issue to be solved in the whole budget system. Firstly, we shall talk about replacing the business tax with a value-added tax which is the main task in tax abatement in the coming one or two years. By replacing the business tax with a value-added tax, it is expected to make the first backbone tax a chine for the whole discount by indirect means so that the service industry will not feel to be charged for twice and there is no business tax. All the taxes shall be regarded value-added tax so as to encourage more detained division and create the neutral tax environment for the development.
◆As for the real estate tax, it is said to speed up the legislation and accelerate the reform; however, at present, we have not witnessed any acceleration and there would be no action this year. As for the individual income tax, it is quite difficult to impose tax upon the personal non-remuneration income and the tax imposition will not be incorporated into the extra progressive tax settlement, as it is a proportional taxation. For instance, as for the king workers like Tang Jun whose monthly salary is more than 100,000 or 200,000, 35% or 45% shall be charged for tax; however, for the richer people, there is no such mechanism. For the individual income tax, the taxes for the people at lower level shall be decreased and for the people at higher level shall be increased and the government shall play the main intermediary role in the direct taxes. This is the direction for development. Only in this way could effectively reduce the indirect taxes. Therefore, it is the interactively accompanying support.
◆Tax abatement is not all for relieving the companies’ burdens in China and even is not the most important issue. To relieve the companies’ hidden burden, is to solve the problem with profit system by supporting reform, instead of the tax system itself. Premier Li Keqiang specially mentioned that it is specially to reduce the administrative charges; however, to what extent it reduces becomes a thing of how to cut their own profits among the departments. Therefore, to truly solve the problem with China’s tax system, reduce the administrative cost in the whole taxation system and reduce the companies’ tax burden, it is necessary to make the ministerial and flattening reform so that the tax and finance reform could be matched with the other reform to relieve the companies’ burdens and our purpose to activate the companies could be fulfilled.
◆The basic information on finance and tax reform is closely related to the whole situation, all the companies and all the social members. We should have the overall situation in mind and recognize the basic thought of development situation. The substantial issue is that the reform would have the decisive result. Only in this way could we have the driving force of state governance modernization and make up our lost labor force comparative advantage during the supply-side reform. The investment marginal income decreases progressively and the land recourses become more and more precious. How could we solve such downside factors restricting our development? The total factor productivity of side supply refers to the scientific and technological innovation and economic innovation. Reform is to make the system renovation to create the room for scientific and technological innovation and only striving for the great-leap-forward development could we step over the trap of middle income. If we take the proper way, there would be another twenty years to continuously improve our comprehensive strength after stepping over the trap.
◆As for the reform of tax and finance, it is emphasized to take the road of modern national governance. The “administration” as we talked usually in the past emphasized the control of government at different levels from top to bottom whereas “governance” mostly stressed the diversified government ad non-government subject, to carry out more and full interactive at the same level, in this way, could the administration and self-administration, organization and self-organization and control and self-control be better combined to release all the potential powers and mobilized all the enthusiasm to emancipate the productive forces. Obviously, this is the vital innovation.
◆Government is not to be a main actor and the market is decisive, which is the foundation for us to further emancipate our thoughts. As a matter of fact, it is much more complicated than what we have described. Market is not to determine all the occasions and all the matters and many affairs shall be led by the government, such as inherence to social equality and fairness, overcoming the market defects and supporting the vulnerable groups, and giving the guidance on industrial policies and technological and economic policies. Such guidance requires better mechanism compatible with the market. This is very challenging. The government could cooperate with the companies and establish the partnership with them to joint make the construction and development, which demonstrate the proper way to deal with the relationship between the government and market in the modern market system. It is an innovation as well as a challenge.
◆Seemingly, the state owns the final ownership of the state-owed assets administration system and could participate in the profit sharing of the state-owned companies. Why could he become the representative of the ultimate ownership of the state-owned assets? In the final analysis, firstly, it is about an issue of controlling finance by power. What is the act of exercising administration by finance? It is to make use of the distributable social products such as the public resources and finance to perform the functions that a government should.
If a country wants to be modernized and seeks for modern state governance, such distribution system in finance must be modernized and this is the inevitable logic. Its meaning and significance for the whole situations is to view finance out of finance system as we talked about for many years. Finance is not the public resource allocation that a few financing professionals shall deal with by themselves. This is why the reform direction to build up the concept of public finance a few years ago and establish the modern finance involves the system optimization and how to eliminate the system shortcomings. It inevitably involves the economic reform as well as the other supporting reform, even the reform of political system and the whole framework. Only in this way, could China truly solve the historical task of how to realize the modernization.
◆The budget reform requires transparency, and then the right of information, the right of inquiry, right of suggestion and right of supervision. Seemingly, it is an issue of technical transparency, followed by controlling finance by politics and exercising political power with finance and it is an issue with system, rather than the trivial thing. China has made somewhat progress; however, it still shall take a long way to reach the ideal level. The central government has the explicit attitude on it. At present, the budget shall be publicized on website and it is expressly required to provide more detailed information and the local government shall follow such principle. If there is no positive and feasible design regarding the reform of political system, whether should we strive to the budget transparency as required by the central government, and whether there should be a sound interactive between budget system and budget and the public to further take the progressive budget road with Chinese characteristics? This is what we should think from the constructive angle.
Tax reform relates to every company and natural person and it is also an issue to be solved in the whole budget system. Firstly, we shall talk about replacing the business tax with a value-added tax which is the main task in tax abatement in the coming one or two years. By replacing the business tax with a value-added tax, it is expected to make the first backbone tax a chine for the whole discount by indirect means so that the service industry will not feel to be charged for twice and there is no business tax. All the taxes shall be regarded value-added tax so as to encourage more detained division and create the neutral tax environment for the development.
◆As for the real estate tax, it is said to speed up the legislation and accelerate the reform; however, at present, we have not witnessed any acceleration and there would be no action this year. As for the individual income tax, it is quite difficult to impose tax upon the personal non-remuneration income and the tax imposition will not be incorporated into the extra progressive tax settlement, as it is a proportional taxation. For instance, as for the king workers like Tang Jun whose monthly salary is more than 100,000 or 200,000, 35% or 45% shall be charged for tax; however, for the richer people, there is no such mechanism. For the individual income tax, the taxes for the people at lower level shall be decreased and for the people at higher level shall be increased and the government shall play the main intermediary role in the direct taxes. This is the direction for development. Only in this way could effectively reduce the indirect taxes. Therefore, it is the interactively accompanying support.
◆Tax abatement is not all for relieving the companies’ burdens in China and even is not the most important issue. To relieve the companies’ hidden burden, is to solve the problem with profit system by supporting reform, instead of the tax system itself. Premier Li Keqiang specially mentioned that it is specially to reduce the administrative charges; however, to what extent it reduces becomes a thing of how to cut their own profits among the departments. Therefore, to truly solve the problem with China’s tax system, reduce the administrative cost in the whole taxation system and reduce the companies’ tax burden, it is necessary to make the ministerial and flattening reform so that the tax and finance reform could be matched with the other reform to relieve the companies’ burdens and our purpose to activate the companies could be fulfilled.
◆The basic information on finance and tax reform is closely related to the whole situation, all the companies and all the social members. We should have the overall situation in mind and recognize the basic thought of development situation. The substantial issue is that the reform would have the decisive result. Only in this way could we have the driving force of state governance modernization and make up our lost labor force comparative advantage during the supply-side reform. The investment marginal income decreases progressively and the land recourses become more and more precious. How could we solve such downside factors restricting our development? The total factor productivity of side supply refers to the scientific and technological innovation and economic innovation. Reform is to make the system renovation to create the room for scientific and technological innovation and only striving for the great-leap-forward development could we step over the trap of middle income. If we take the proper way, there would be another twenty years to continuously improve our comprehensive strength after stepping over the trap.
