Research on the Related Issues Concerning China’s New Tax Reform

In order to build up a tax system which is adaptable to socialist market economy, China carried out a structural tax reform in 1994 which is the most extensive and intensive one after the foundation of PRC (the People’s Republic of China).Though the existing tax system, over the past years experiment, has made great achievements in promoting the development of economy, steadily increasing the tax revenue, motivating the fiscal departments at all levels, balancing the proportions of tax revenue from different economic entities, it is still facing many challenges. In terms of international economic situations, globalization and regional economic integration has exerted greater influence on the development of world economy and policies of the governments. The world－ wide tax reform in 1980s aiming at “a more simplified tax system, broader tax base, and lower tax rates” has been used by the governments as an effective way to deal with the globalization. China has been more and more international in economy and if the tax system in China remains unchanged, it will damage the competitiveness of Chinese enterprises, hence hurting the economic development in China. From a national perspective, the inconsistence of present tax system with economic development and “reform and opening” policy has been more and more obvious. For example, the less efficiency of tax system in the market economy and failure to give priority to efficiency with due consideration to fairness are not favorable to fair competitions among economic subjects；Level of tax burden is unreasonable. In terms of macro－tax burden level, the nominal tax rate is lower, but the real fiscal burden is higher. In term of the micro tax burden level, the legal tax rate is on the high side, but the real burden is much lower. The structure of tax system is not reasonable. Firstly, the proportion of direct and indirect tax is on the wrong way. The revenue from the former accounted for more than 60% of the total revenue. Secondly, some of the taxes overlapped one another, and some even do not hold water any more. Some prevailing taxes in the world are not included in the system. The macro tax burden is regionally imbalanced. The increase rate of tax revenue and macro tax burden in eastern part of China is higher than that in the middle and the western parts. Tax preference is unable to promote the development of high－tech enterprises and small and medium－sized enterprises (SMEs). There is also the upward difficulty of tax collection and management. A new tax reform is imperative under the circumstances. The overall objective of the reform is to make overall plans and take all factors into consideration, make good arrangement of each party and their relationships, maintain fairness, regularize in a transparent way, manage scientifically and administrate according to the law. The following is the detailed objectives：to unify tax law and keep a fair tax burden ；to optimize the tax system and reasonably select the major tax category and tax item；to upgrade the level of tax law and increase its transparency；to regularize the distribution mode of government；to carry put human centered tax reform and administer tax for the people；to improve the effectiveness and efficiency of tax collection and management；to promote the overall, coordinated and sustainable economic development. It is in the spirit of “a more simplified tax system, broader tax base, lower tax rates and stricter tax collection and administration” that China carried out the reform on the following aspects：deepen the tax and fees reform in rural areas；reform the export tax rebate and tariff system；unify the corporate income tax system applied to domestic and overseas－funded enterprises；to unify the corporate income tax system applied to domestic and overseas－funded enterprises；to implement the shift of VAT and to improve the value added tax system；to improve consumption tax and moderately enlarge tax bases；to improve the personal income tax, to implement an integration of compound and classified tax system；to reform the property tax and carry out the city and county town construction tax and fee reform；Estate is to be taxed a unified estate tax；to cancel tax on investment in fixed asset, animal slaughter tax, feast tax and land appreciation tax；The social security tax, endowment tax and inheritance tax will be imposed when opportunity offers；to improve the tax preference policy； Tax preference policy should be applied to not only the income taxes but also the turnover taxes. Transitions from direct preference to indirect preference, from the region orientation to industry orientation supported by regional preference are needed. The introduction of advanced technologies weighs more than foreign investment attraction, which depend more on the overall investment environment than on the preference policies. Domestic and overseas－funded enterprises should be granted the same tax preference. The change of tax preference mode calls for necessary steps to guarantee the consistence. In addition, tax restriction policy should be used to improve the effect of tax preference policy. A reform to transform administrative fees into tax must be introduced. Years of big increase in tax revenue has proved valuable for the country to bear the burden of tax decrease. Considering the current macro economic as well as fiscal income and tax revenue situations in China, time is ripe to press forward a new tax reform in an all－round way. China’s reform and opening－up as well as economic construction is a gradually realized process which is extensive in its contents. The drafting of tax law also needs time. Therefore, the steps of the new tax reform should be planned comprehensively and be taken in a step－by－step manner. Compared with the 1994 reform, the feature of the new reform is that the efforts made are even greater. The objective of the new is to rationalize the relationship between government and market rather than the revenue distribution between central and local governments. The contents of it is to improve the current tax system rather than to destroy it. The reform is gradual in nature rather than radical and overall. The after－reform structure is more reasonable, more efficient and fairer. In order to meet the demand of economic integration, new tax reform should also put emphasis on international coordination.