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Yu Miaojie: Taxation System Critical for Common Prosperity

Sep 01-2021   



During the 10th meeting of the Central Committee for Financial and Economic Affairs (CCFEA) on August 10th, “common prosperity” was the focal point. To solidly promote prosperity for all, taxation reforms are imperative, says Prof. Yu Miaojie, CPC Chief of the NSD, in an interview with 21st Century Business Herald.

 

The overall direction for taxation reforms, he says, is to design a more scientific structure for the taxation system by lowering the proportion of indirect taxes and levying more direct ones, such as on capital gains, property, inheritance, gift, and luxury goods consumption.

 

Even after rounds of taxation reform, indirect taxes such as VAT and business tax still amount to 40% or so of China total tax revenue. The tax burden is shifted to consumers, especially the mid and low-income ones, causing over-adjustment to labor but under-adjustment to capital.

 

China’s Gini Coefficient reached 0.41 in 2020, which was low among developing countries but still higher than the internationally-recognized alarm line of 0.4. Notably, the ratio between average urban and rural income stood at 2.56 in 2020, significantly higher than the 1.6 ratio in developed countries. Income gaps are also conspicuous across industries and regions.

 

On the fundamental institutional arrangements laid out in the meeting the CCFEA, Prof. Yu explains that the primary distribution predominantly relies on the market, with the main goal of enlarging the ‘economic cake’; it stresses efficiency. (Secondary) redistribution aims to make adjustments through taxation, social security, and fiscal transfer; it stresses fairness. Tertiary (re)distribution of wealth works through moral guidance and social values to encourage people to donate and take part in charitable causes, so that the ones that get rich first will help the less fortunate along.

 

Prof. Yu also proposes a personal income tax system with a wider tax base but lower tax rates, differentiated tax rates for industries (e.g., tax reduction for high-tech ones but heavy taxation on the entertainment industry), as well as tax exemption for donations.

Yu Miaojie: Taxation System Critical for Common Prosperity

Sep 01-2021   



During the 10th meeting of the Central Committee for Financial and Economic Affairs (CCFEA) on August 10th, “common prosperity” was the focal point. To solidly promote prosperity for all, taxation reforms are imperative, says Prof. Yu Miaojie, CPC Chief of the NSD, in an interview with 21st Century Business Herald.

 

The overall direction for taxation reforms, he says, is to design a more scientific structure for the taxation system by lowering the proportion of indirect taxes and levying more direct ones, such as on capital gains, property, inheritance, gift, and luxury goods consumption.

 

Even after rounds of taxation reform, indirect taxes such as VAT and business tax still amount to 40% or so of China total tax revenue. The tax burden is shifted to consumers, especially the mid and low-income ones, causing over-adjustment to labor but under-adjustment to capital.

 

China’s Gini Coefficient reached 0.41 in 2020, which was low among developing countries but still higher than the internationally-recognized alarm line of 0.4. Notably, the ratio between average urban and rural income stood at 2.56 in 2020, significantly higher than the 1.6 ratio in developed countries. Income gaps are also conspicuous across industries and regions.

 

On the fundamental institutional arrangements laid out in the meeting the CCFEA, Prof. Yu explains that the primary distribution predominantly relies on the market, with the main goal of enlarging the ‘economic cake’; it stresses efficiency. (Secondary) redistribution aims to make adjustments through taxation, social security, and fiscal transfer; it stresses fairness. Tertiary (re)distribution of wealth works through moral guidance and social values to encourage people to donate and take part in charitable causes, so that the ones that get rich first will help the less fortunate along.

 

Prof. Yu also proposes a personal income tax system with a wider tax base but lower tax rates, differentiated tax rates for industries (e.g., tax reduction for high-tech ones but heavy taxation on the entertainment industry), as well as tax exemption for donations.