Commentary
It is time to return the power of taxation to the people After almost three decades of taxation through executive decrees, it is time to return the power of taxation to the National People’s Congress By Tang Gongliang
D
uring the annual session of the National People’s Con- advocated by China’s new leadership. The time has come to make gress (NPC) in March, the most influential proposal a strategic adjustment. made by an individual delegate was likely that of Zhao First of all, China should establish the principle of statutory Dongling, a renowned screenwriter taxation, to allow society to parwho proposed that China should esticipate in the decision-making The tax agencies have a free hand to tablish a statutory taxation principle process, promoting its legitimacy. and return the power of taxation to In the long run, the NPC should decide how much tax is collected and the NPC. gradually retract the authorization in what ways, and this inevitably leads China’s current taxation system it has granted to the State Council, to crippling taxation was established after the policy of Reand such authorization should be form and Opening-up was launched outlawed in the future. The State in late 1978. In 1984 and 1985, the Council should ask the NPC to NPC authorized the State Counreview existing taxes based on adcil exclusive power to legislate on taxation. Since then, the State ministrative regulations, and make relevant legislation. Council has launched a series of decrees and regulations, which Currently, China is experimenting with various tax reforms. The have formed China’s current taxation system. Among 18 types of most controversial of these is the property tax, currently confined taxes, only 3 are authorized by legislation, and the rest enacted by to Shanghai and Chongqing, where only newly acquired properties executive stipulations, many of which claim to be “provisional” and are subject to taxation. It is expected that when the tax is rolled “interim” but have been in effect for decades. out nationwide, local governments will be authorized by the State While the flexibility of this arrangement was somewhat useful as Council to work out the details in their cities. Such a re-authorizaChina moved away from a rigid planned economy, three decades of tion would actually violate existing legislation passed in 2000. economic development have made it obsolete. With more than 10 Another high-profile tax reform is the replacement of the busitrillion yuan ($US1.6tn) collected in taxes each year, the dark side ness tax, a crude levy imposed on the value of a firm’s sales, with valof the system has become increasingly obvious. The tax agencies ue added tax in various services. The reform, designed to reduce the have a free hand to decide how much tax is collected and in what tax burden on enterprises, has been widely welcomed. In expanding ways. This inevitably leads to crippling taxation, taking a heavy toll the reform, the government should not only consider the individual on the economy. In addition, the concentration of the power of tax, but incorporate it into an overall strategy to transform the basic taxation in the hands of the central government also leads to a un- structure and nature of China’s taxation system. balanced distribution of tax revenue between the central and local governments. (The author is a professor and director of the School of Taxation of the Such a system also runs counter to the rule of law, which has been Central University of Finance and Economics)
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NEWSCHINA I May 2013