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Finance & Economy

China approves sweeping tax reforms to tackle income inequality


China Income InequalityChina unveiled sweeping tax reforms on Tuesday to make wealthy state-owned firms, property speculators and the rich pay more to narrow a yawning gap between an 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 5 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 the current reliance on investment spending.

“The State Council is not just talking about the gap between rich and poor, they’re talking about the whole economy and how income is distributed among various actors – the households, the corporations and the government,” said Andrew Batson, research director of GK Dragonomics, an economic consultancy in Beijing.

“It’s about changing the entire flow of income around the national economy.”

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 also 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.

And rural migrants will get more opportunity to transfer their official residency to cities, where wages and social services are better.

PRESSURE ON STATE-OWNED FIRMS

Trimming the power enjoyed by state-owned firms was top of the list of structural reforms submitted by think-tanks ahead of 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 which 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 also 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.

REINING IN THE RICH

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 coefficient, a measure of income disparity, had reached 0.474 – well above the 0.40 level considered a trigger for social discontent.

“The urban-rural gap and the difference in citizens’ income is relatively large, income is irregularly distributed, there are obvious problems of grey income and illegal income, and some of the masses live in difficult conditions,” the circular said.

Tax reforms included expanding a pilot property tax to more cities, adjusting a property transaction tax, levying a number of luxury taxes and “studying” an inheritance tax to be introduced “at an appropriate time”.

Source: Reuters – “China OKs sweeping tax reforms to tackle inequality”
 
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About chankaiyee2

Author of the book "Tiananmen's Tremendous Achievements" about how with the help of Tiananmen Protests, talented scholars with moral integrity seized power in the Party and state and brought prosperity to China. The second edition of the book will be published within a few days to mark the 25th anniversary of Tiananmen Protests All the parts in the first edition remain in the second edition with a few changes due to information available later and better understanding. There are also some changes for improvements of style. The new parts are Chapters 12-19 on events in China after the first edition was published: The fierce power struggle for succession between reformists and conservatives; Xi Jinping winning all elders’ support during his mysterious disappearance for 2 weeks in early September, 2012; and Xi Jinping Cyclone. Chan Kai Yee's new book: SPACE ERA STRATEGY: The Way China Beats The US An eye-opening book that tells the truth how the US is losing to China. The US is losing as it adopts the outdated strategy of Air-Sea Battle while China adopts the space era strategy to pursue integrated space and air capabilities: It is losing due to its diplomacy that has given rise to Russian-Chinese alliance. US outdated strategy has enabled China to catch up and surpass the US in key weapons: Hypersonic weapons (HGV) that Pentagon regards as the weapon that will dominate the world in the future. Aerospaceplane in China’s development of space-air bomber that can engage enemy anywhere in the world within an hour and destroy an entire aircraft carrier battle group within minutes. Anti-satellite (ASAT) weapons, anti-ASAT weapons, stealth aircrafts, drones, AEW&C, etc. The book gives detailed descriptions of China’s weapon development based on information mainly from Chinese sources that the author monitors closely. U.S. Must Not Be Beaten by China! China is not a democracy. Its political system cannot prevent the emergence of a despotic leader or stop such a leader when he begins to bring disasters to people. A few decades ago, Mao Zedong, the worst tyrant in world history did emerge and bring disasters to Chinese people. He wanted to fight a nuclear war to replace capitalism with communism but could not bring nuclear holocaust to world people as China was too weak and poor at that time. If a despot like Mao Zedong emerges when China has surpassed the US in military strength, world people will suffer the misery experienced by Chinese people in Mao era. China surpassing the US in GDP is not something to worry about as China has the heavy burden to satisfy its huge population, but China surpassing the US in military strength will be world people’s greatest concern if China remains an autocracy. US people are of much better quality than Chinese people. What they lack is a wise leader to adopt the correct strategy and diplomacy and the creative ways to use its resources in developing its military capabilities. I hope that with the emergence of a great leader, the US can put an end to its decline and remain number one in the world. China, US, space era strategy, air-sea battle, space-air bomber, arms race, weapon development, chan kai yee

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2 thoughts on “China approves sweeping tax reforms to tackle income inequality

  1. Reblogged this on Oyia Brown.

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    Posted by OyiaBrown | February 6, 2013, 11:27 pm

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  1. Pingback: $2.34 trillion untaxed income in China every year | China Daily Mail - March 16, 2013

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