Xiang gives more details on tax plans

CHINA'S Vice-Finance Minister Xiang Huaicheng has provided more details on the Government's tax reform package, which is designed to increase the proportion of central government income to about 60 per cent of total state revenue.

With the rapid development of the economy, particularly in the prosperous southern provinces, central government income had declined significantly over the last decade.

Mr Xiang said there was an urgent need to boost Beijing's revenue.

The proportion of central government revenue had fallen from about 57 per cent in 1981 to just 38.6 per cent last year, causing ''great financial difficulties'' and deepening the budget deficit, he said.

''We must make efforts to change the situation to strengthen macro-[economic and fiscal] control,'' Mr Xiang was quoted by Xinhua (the New China News Agency) as saying.

As part of the plan to increase central government revenue, Mr Xiang said a system of central and shared taxes would be put in place to ensure that Beijing retained 60 per cent of all state revenue.

Two-thirds of that revenue would be earmarked for central government expenditure on national defence, foreign affairs, key state projects, while the remainder would be transferred to local governments through a system of grants.

Central government would retain the responsibility for taxing areas concerned with national economic development, such as trade tariffs, customs, state enterprise income, banking and insurance, while local governments would collect corporate and income taxes.

Value-added tax (VAT), securities trading tax and a natural resources tax would be shared between the central and local governments, Mr Xiang said.

The central government will retain 75 per cent of VAT revenue and 50 per cent of the securities trading tax, which is now only collected in Shanghai and Shenzhen.

Since most of China's natural resources are in the poorer western and inland provinces, the majority of the revenue from the natural resources tax will be retained by the local governments.

However, all tax income from offshore oil exploration will be retained by the central government.

Analysts warned that, given the complexity of China's current tax system, it could be several years before the new regime was finally in place.

''Although the general principles of the new system appear to have been worked out between Beijing and the regional governments, the administrative process of getting it up and running could take years,'' a legal expert in Beijing said yesterday.

''This is probably the most ambitious bureaucratic reform ever undertaken by Beijing and it is not going to happen overnight,'' he added.