Chinese Regime Defends its Tax Burden

November 27, 2011 Updated: November 27, 2011

China’s fiscal revenue for the first 10 months of this year exceeded the planned revenue of the entire year; experts look at the figure and go on the attack, while the Chinese regime is defending its record.

Larry Lang, Professor of Finance at The Chinese University of Hong Kong, gave a speech in later October arguing that the Chinese regime imposes a heavy tax burden on businesses and individuals in the country.

“The overall profits of all companies in China are about 10 trillion yuan (approximately US$1.6 trillion). The government took more than 7 trillion yuan (approximately US$1.1 trillion),” Lang claimed. “In tax revenue, the tax from private entrepreneurs, small business, and vendors is 80 percent, and only 20 percent is from the state-owned enterprises,” he said.

In his speech Lang claimed three errors in the government’s policies, one of which was too much taxation. He argues that the direct and indirect taxes that entrepreneurs paid last year were 70 percent of their profit before tax; and that the individual tax rate sits at 51.6 percent. These differ from the official numbers.

In response the Ministry of Finance said that China’s macro tax burden is not high, relatively speaking, according to a Beijing News report on Nov. 15.

An unnamed official told Beijing News that according to the International Monetary Fund’s method, China’s macro tax burden was 26.4 percent in 2010 and 25.3 percent in 2009. The world average in 2009 was 36.4 percent, with averages of 40.8 and 32.9 percent in developed and developing countries respectively.

Zhang Xinyu, a former professor of Ningbo University of Technology now living in Vancouver, said that attempting to use the macro tax burden figures to stand in for the actual tax burden is a trick. Rather than simply dividing the tax revenue by the gross domestic product, which gives the macro tax burden, a more complete algorithm should be applied: this is to measure the tax revenue, plus non-tax revenue, minus public expenditures, divided by GDP. This gives the actual tax burden, Zhang said.

“China’s current situation is that the government’s non-tax revenue is at least half of the total revenue, while the ratio of the public expenditure in GDP is significantly lower than the world average,” he said.

In 2007, for example, the United States’ and China’s macro tax burdens were 28 percent and 20 percent respectively, while the United States’ and China’s ratios of public expenditure in fiscal revenue were 70 percent and 20 percent, according to Zhang. This makes the ratios of non-tax revenue for the U.S.A and China 17 percent and 50 percent, meaning the actual burden for Americans and Chinese was 13.5 percent and 24 percent.

A bigger problem stands behind the figures, too, according to Zhang: “The tax received by China’s Ministry of Finance is not for the welfare of the people, but for groups with vested interests. The huge administrative costs, and the three major private money-consumption for officials (cars, banquets, and foreign trips) from public funds, are found outrageous by many within the system.”

But even the tax money actually used for public expenditures is spent on things that don’t serve the public, Zhang said. This includes the Chinese regime’s vast and sophisticated system of censorship, surveillance, and repression.

Zhang added: “Take these into account and the tax misery index of China is world number one.”

Read the original Chinese article.