RENOWNED ECONOMIST Adam Smith viewed taxation as an art learned by government to drain money from the pockets of people and business. If alive today, he would no doubt hold similar opinions and would be observing with interest the significant changes being planned by the mainland government to its methods of tax collection.
Peter Kung, China tax partner for accountancy firm KPMG, said companies with mainland-related business should keep a close eye on several forthcoming changes. These primarily concerned transfer pricing, the unification of domestic and foreign tax codes, and refunds of value added tax (VAT), which Mr Kung sees as an important issue that has received surprisingly little attention.
Although the international financial press has largely focused on exchange rate policies and the possible revaluation of the yuan when discussing ways to reduce China's trade surplus with the rest of the world, Mr Kung sees other options.
'Reducing the VAT export refund rate is an alternative to currency appreciation. This would increase the cost of exports, reduce demand for them and cut the balance of payments surplus in a way similar to allowing the yuan to appreciate in value,' Mr Kung said.
This method had the advantage of generating extra tax revenue.
'The government is thinking about implementing it this year, but no decision has been made yet,' he said.