THE proposed introduction of income tax and value-added tax (VAT) in China is unlikely to have any short-term effect on the country's overheating, say tax experts in Hongkong. ''Tax is a very unsophisticated tool in that area, it takes a long time to work,'' said Marshall Byres, chairman of tax services at Ernst & Young. But there was a warmer welcome for the plan to introduce a value-added, or sales, tax to China. This is seen as proof that the country is working to bring its tax structure into line with international practice. The danger of introducing a VAT is the possible sales boom which would precede its imposition. Rumours that prices of goods were to be increased as a result of the tax could spark off huge demand, so adding to China's short-term problems. Introducing both taxes is going to require a massive education programme, according to analysts. Encouraging a population which is suspicious of all forms of taxation - particularly after the abuse of the present fragmented system in some regions - to accept new ways of paying money to the Government is unlikely to be easy. To make an income tax more palatable, Beijing is expected to target only the very wealthy, which will also reduce the geographical complications of collecting the tax. If a high enough threshold is set, then it will apply to businessmen, who will be in the main cities, and the very wealthy, and easily identifiable farmers. However, tax experts said history showed that every tax spread, and in the long term the authorities would have to work out a programme which brought a greater percentage of the population into the tax net. Mr Byres reckoned the initial threshold would be set so high that only 100 million or so of China's population would be liable initially, and the rate would be set low enough not to cause too much pain, and therefore discourage elaborate and illegal tax evasion programmes. The suggestion of introducing VAT comes as no surprise. It has been foreshadowed by official sources in the past, and there have already been some experiments with the system in special economic zones such as Shenzhen. In these zones, VAT has been collected for a number of years, with certain companies, according to status and destination of their products, paying the tax rather than the more widespread consolidated industrial and commercial tax. The instinctive fears that VAT would be accompanied by widespread avoidance and a cumbersome bureaucracy were soothed by Hongkong analysts, who said it could work smoothly, as long as the threshold was high and the rate of tax was low enough not to scare away the public. But Beijing should be very firm about applying a single rate - whether it was on rice or a Mercedes-Benz. This would make collection much easier. To attempt to tax different products at different rates would only open to the system to the sort of problems that have been encountered in Australia, Canada and elsewhere. The big question that economists in Hongkong are asking is how much the two taxes would raise in revenue, and how the money would be spent. Given the size of China's population, even low rates could generate huge amounts of money, which would become available for infrastructure projects and local developments. Ensuring an equitable spread of expenditure would be one of the problems the Government would have to face in the future, the analysts warned.