MCLC: tax reforms

[Denton, Kirk]

MCLC LIST
From: kirk (denton.2 at osu.edu)
Subject: tax reforms
***********************************************************

Source: The Guardian (2/6/13):
http://www.guardian.co.uk/world/2013/feb/06/china-tax-reforms

China unveils major tax reforms to make rich pay more
Sweeping tax changes will also cut power of state-owned firms and narrow
gap between urban elite and rural poor
By Reuters

China has unveiled sweeping tax reforms to make wealthy state-owned firms,
property speculators and the rich pay more to narrow the gap between the
urban elite and hundreds of millions of rural poor.

The plans approved by the state council – China's cabinet – also included
commitments to push forward market-oriented interest rate reforms to give
savers a better return and more security.

Chief among the reforms is a requirement to raise the percentage of
profits contributed by state-owned firms to the government by about five
percentage points by 2015.

Together with measures to raise wages and improve households' return on
assets, the reforms signal an attempt to shift economic growth towards
increased consumption and away from reliance on investment spending.

One key change will make interest rates more flexible. Interest rates on
savings deposits have lagged inflation for many years, depressing returns
for households and pushing those who can afford it to more speculative
investments.

"Push forward market-oriented interest rate reform, appropriately expand
the floating range for interest rates on deposits and loans and protect
depositors' interests," the announcement said.

It called for "building a long-term mechanism" to boost rural incomes, and
reiterated previous pledges to raise incomes, particularly for the poor.
Citizens would see more opportunities to earn money from assets, including
increasing fund products, and expanding income from rents, dividends and
bonuses.

Rural migrants would get more opportunity to transfer their official
residency to cities, where wages and social services are better.
Trimming the power enjoyed by state-owned firms was top of the list of
structural reforms submitted by thinktanks before the November change of
leadership in the ruling Communist party.

State-owned firms generally transfer only a small portion of their profits
to the state but have come under increasing pressure from reformists who
believe they benefit from too much support that the private sector does
not share.

These profits are seen as a potential source of funding as China builds
pension, health insurance and other systems to create a social safety net
for its citizens.

Raising the dividend payout from state-owned enterprises will go some way
to curbing criticism from China's trading partners that Beijing unfairly
supports its state-backed firms by giving them numerous tax breaks and
access to cheap capital.

"For state-owned companies in some industries with overly high income, we
will strictly implement the two-tier controls on firms' total salary and
wage level to gradually reduce the salary gap between different
industries," said the circular.

The announcement also took on powerful state-backed monopolies, calling
for "enhanced supervision" to avoid improper access to public resources at
low or no cost. Oil companies and others have long resisted attempts to
increase the amount they pay the state for natural resources.

Decades of economic reform have made some very rich and brought prosperity
to an urban middle class. But many, particularly in the countryside, have
been left behind.

Efforts to build a progressive individual income tax system have been
stymied by undeclared sources of wealth, while pilot plans to introduce a
property tax have been wildly unpopular.

The National Bureau of Statistics this month released an updated estimate
that the country's Gini co-efficient, a measure of income disparity, had
reached 0.474 – well above the 0.40 level considered a trigger for social
discontent.