Tax weighs down 87 per cent of China’s business owners, survey finds

Major tax reforms will invigorate private sector and economic growth, according to research

PUBLISHED : Thursday, 03 November, 2016, 11:29pm
UPDATED : Friday, 04 November, 2016, 9:13am

The mainland needs to thoroughly reform its tax system to help invigorate crucial private sector employment and inject new momentum into the nation’s economic growth, says new research.

A report published on Thursday by Beijing-based Unirule Institute of Economics, which investigated surveyed 113 small and medium-sized private firms across 12 industries and four provinces, found 87 per cent of entrepreneurs complained about a high tax burden.

Red tape hobbles China’s tax-relief scheme for hi-tech firms

Their concerns suggest the structural tax cut campaign is largely failing to meet expectations and there is still plenty of room to reduce the non-tax burden.

“China needs to examine its 20-year-old proactive tax policy,” said Li Weiguang, a professor at Tianjin University of Finance and Economics and the co-author of the report.

The macro tax burden, or the tax-to-gross domestic product ratio, ranges from 30-40 per cent on the mainland, but this does not include expenditures such as on employee’s social security payments and government surcharges.

‘Like sacrifices to angry god’: how China’s taxes are bringing down businesses

“The national tax policy and economic growth have a clear negative correlation as seen from the data in the past 37 years,” said Li, calling for a full-scale tax cut.

Private firms, despite stubborn financing difficulties and market entry bottlenecks, face an increasing financial burden.

They contributed 51.4 per cent of the national tax revenue in 2014, compared with 39.3 per cent a decade ago, the report said.

Mainland China tax audits seen as ‘unfair’

The proportion paid by state-owned enterprises fell by 10.3 percentage points, to 29.3 per cent, while foreign-funded firms saw the level decline by 1.8 percentage points, to 19.2 per cent.

“The high tax burden could be the last straw to send private firms into bankruptcy,” Unirule economist Zhang Shuguang warned.

The mainland has pinned hopes on private investment – usually accounting for 60 per cent of total fixed-asset investment – to help stabilise growth. But the January to September growth figure stood at 2.5 per cent – much lower than the 8.2 per cent increase seen for all fixed-asset investment at the national level.