22 January 2019

Government fund levies face scrutiny

Nothing in this world is certain but death and taxes, according to an old saw. But in China, people can’t help but grumble about the excessive taxes and fees they have to pay the government.

Forbes ranks China second only to France on its worldwide Tax Misery Index — China could have topped the list if an additional 12.1 percent flat tax on income were not included for France. PricewaterhouseCoopers estimates in its Paying Tax report that China imposes an aggregate tax rate of 63.7 percent. By comparison, Hongkongers are the third least miserable taxpayers among the 66 economies surveyed by the US magazine.

Unsurprisingly, China’s tax authority took exception to the report when it came out, insisting that the country’s tax rate is much lower than the PwC estimate, although it did not mention a specific figure. In fact, the government has rolled out several tax reform initiatives, such as a wider application of the value-added tax to replace turnover tax, in a bid to trim down the overall rate.

Yet besides taxes, businesses and individuals in China have to pay a raft of other charges and administrative fees. Also, the central authorities as well as local administrations maintain numerous funds for various purposes, the money for which comes from imposing additional levies.

It is estimated that income from these government funds has swollen to 4 trillion yuan (US$656.8 billion) as of last year. And cadres just love these funds since, unlike taxes, no legislation is required.
With the scrapping of the turnover tax, local governments are likely to create more of such funds to recoup the money.

The good news is the Ministry of Finance has been reviewing such funds at the central and local government levels since March last year, and will soon submit a report to the State Council for the latter’s reference when considering a clampdown, the Economy and Nation Weekly reports.

The scrutiny, described by official Xinhua news agency as the most comprehensive since 2005, has examined 30 categories of national government fund levies that were set up for a whole range of purposes, ranging from promotion of environment-friendly building materials to disposal of electronic waste. However, countless regional levies are not yet covered by the ministry’s review.

Many of these levies are whimsical. For example, a fund for new agricultural land for vegetable production was introduced in 1985; local governments used the money to acquire plots in urban areas for food self-sufficiency. The levy is still being imposed, although there is no longer a need to grow vegetables in the cities. More than 1 billion yuan was collected in the name of the fund in 2012.

Although China’s Law on Legislation stipulates that government fund levies can only be imposed with the consent from the National People’s Congress (NPC) or the State Council, the reality is that many of such funds were set up by virtue of some internal department charters.

Last July a lawyer sued the Civil Aviation Administration for levying 50-90 yuan on every airline passenger for the civil aviation development fund, demanding that the government body produce the NPC or State Council authorization for the fund. The CAA refused on the grounds that the information is a state secret. Many believe the CAA hasn’t obtained the approval, the weekly reports.

A source close to the finance ministry told Xinhua that just six of the 30 types of national fund levies comply with the procedures under the Law on Legislation. Yet despite the huge burden such levies impose on law-abiding citizens, the central government is not likely to put more teeth to the law.

The government departments and agencies that imposed those levies will insist on the importance of such funds, and if the finance ministry insists, they will ask for direct subsidies to make up for their losses, observers say.

It’s uncertain whether the State Council will address the issue at all, let alone take a tough stand. But compared to the 30 national fund levies, local impositions will be in a more vulnerable position in the face of a potential crackdown, given that local-level cadres won’t object to orders from superiors in the central government.

A financial expert with the Chinese Academy of Social Sciences suggests that the income from these fund levies be included in the central and local government budgets and that the National Audit Office be asked to keep an eye on how the money is spent.

– Contact the writer at [email protected]




EJ Insight writer

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