Caixin
Dec 23, 2016 06:19 PM
ECONOMY

Tax Bureau Disputes Accusations That Tax System Stifles Growth

(Beijing) — China's tax bureau has hit back at an academic who claims the country's business tax system has stifled corporate development and dragged down economic growth, calling the accusation “misleading.”

A study conducted by Li Weiguang, a fiscal-policy professor at Tianjin University of Finance and Economics, concluded that the corporate tax rate in China was nearly 40%.

The report follows the much-publicized decision of Cao Dewang, chairman of auto glass manufacturer Fuyao Glass Industry Group Co. Ltd., to move his business operations to the U.S. to take advantage of lower taxes.

The State Administration of Taxation defended itself in a series of articles posted on its website, saying tax revenues contributed 18.5% to the country's gross domestic product (GDP) from 2012 to 2015. According to the International Monetary Fund, the tax revenue-to-GDP ratio was 25.9% in developed countries in 2013, the tax bureau said.

The professor's "remarks have attracted public attention and provoked people, and especially companies, to voice their resentment about the economic slowdown, which has had a number of negative impacts," wrote Li Wanfu, head of the tax bureau's research group.

While China has vowed to slash taxes for companies as the government looks to entrepreneurs to help drive economic growth, many companies and experts are still critical.

During a news conference earlier this month, Li Weiguang said that based on his research of privately owned companies in four cities, Chinese companies pay nearly 40% of their income as taxes.

"This means death" for companies, he said, adding that the tax burden was one of the causes for the economic stagnation but "barely addressed by economists."

Glass tycoon Cao also found himself at the center of a heated debate this week over his $600 million investment to build manufacturing bases in the U.S. states of Ohio and Illinois, citing high taxes and soaring labor costs at home.

The rare move caused a stir as articles titled Cao Dewang is running away flooded the internet. Cao refuted the accusations and called for tax reform.

"I'm not running away," Cao later said in an interview with Caixin. But he did suggest the government reform the current tax system to make China more business-friendly for small and midsize manufacturers by raising income taxes and reducing value-added taxes for enterprises.

The only thing that the tax bureau and Li Weiguang agree on is that companies currently contribute 90% of the country's tax revenues. To solve this problem, the government "will optimize the tax structure but this is a gradual process," said Li Wanfu.

Li Weiguang acknowledged the subject was sensitive but expressed surprise at the intensity of the reaction.

"The backlash is really strong. Behind tax policy is politics," the professor said in an interview with news portal Netease. "I stirred the hornet's nest this time."

Contact reporter Chen Na (nachen@caixin.com)

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