Opinion: The Principle of Taxation by Law Should Be Firmly Followed

A new wave of fiscal and tax system reforms has recently gained significant market attention, causing anxiety among businesses due to “retroactive tax investigations." However, the State Taxation Administration clarified that no nationwide, industrywide, or concentrated tax inspections have been organized or planned to investigate tax issues dating back 20 to 30 years. Hu Jinglin, the head of the State Taxation Administration, emphasized the importance of upholding the rule of tax law and avoiding overtaxing, highlighting this as crucial for tax work. [para. 1]

The significance of taxation extends beyond efficient resource allocation and social fairness; it is also integral to the interests of every market entity, requiring a balanced approach between scientific taxation and public sentiment. Ensuring adherence to “taxation by law,” a principle outlined in the constitution and laws, is essential to mitigate anxiety during tax reforms and establish a secure and effective taxation environment. [para. 2]

The principle of taxation by law involves three components: the legality of tax types, tax elements, and procedures. It was first proposed in 2013 and reinforced in 2015, mandating that tax types, rates, and collection methods be legislated. This principle has accelerated tax legislation, reduced costs, and minimized arbitrary taxation, providing market entities with stable expectations and contributing to the establishment of a high-level socialist market economy in China. [para. 3]

Businesses' concerns stem from fear of administrative abuse and overtaxation, particularly when the principle of taxation by law is violated. The head of the Taxation Administration pointed out the need for strict tax administration to prevent internal “leakage” and external “collapse,” underscoring the importance of plugging these leaks through rigorous implementation of tax laws to protect economic tax bases and support economic growth. [para. 4][para. 5]

The necessity for rigorous tax law implementation is emphasized, especially given the complexities influencing economic growth. Increased tax burdens could inhibit enterprise growth and economic recovery. Despite structural tax reductions in recent years, many businesses and taxpayers perceive normal tax burdens as excessive, particularly during business hardships. Practices leading to overtaxation are harmful to local economies, fiscal health, employment, and the broader business environment. Nationally, such practices hinder market unification and disrupt the rule of law. [para. 6]

Adhering to statutory taxation while advancing tax reform is crucial. Current laws are often too abstract, allowing room for over taxation. Future legislation should focus on enhancing practical tax administration frameworks. Tax audits and enforcement directly impact taxpayers, and irregularities such as inconsistent tax incentives can cause significant business distress. The ongoing revision of the Tax Collection Administration Law should cautiously address the distribution and limitation of powers. [para. 7]

Public awareness and participation are fundamental to statutory taxation and are vital for government legitimacy. Public participation ensures tax reforms face minimal resistance. Future fiscal reforms must prioritize tax transparency, fairness, and convenience, encouraging diverse opinions and addressing taxpayers' legitimate concerns. [para. 8]

The Laffer Curve illustrates that tax rates below a certain threshold increase government revenue, while higher rates beyond this threshold reduce it. Historical tax reforms in China have shown that effective tax policies can stimulate market vitality. As the tax system undergoes critical changes, there is a collective hope that the new reforms will invigorate market dynamics and uphold statutory taxation principles, advancing high-level market economy developments and national governance modernization. [para. 9]