March 9, 2011 / 7:55 AM / 9 years ago

Analysis: China's "Tea Party" starts call for lower taxes

BEIJING (Reuters) - You might call it the Steamed Bun Party.

A woman walks past the local taxation bureau in Hefei, Anhui province March 9, 2011. The Chinese character reads: "tax". REUTERS/Stringer

A small but increasingly vocal number of Chinese are beginning to complain about taxes, placing their government in the unfamiliar position of having to defend — and sometimes change — its fiscal policies.

It is hardly any kind of popular uprising and is certainly not an organized movement like the anti-establishment Tea Party in the United States. Still, expressions of discontent about taxes are significant in the controlled world of Chinese politics. The economic consequences are also big, with taxation one of the keys to unlocking China’s long-suppressed domestic demand.

The emergence of taxes as a public concern has been on display this week at the National People’s Congress, the country’s annual session of parliament which features scripted meetings and next to no real debate.

It all started with the humble steamed bun, a white, tasteless bread roll eaten as a filler in northern China.

Pan Yaomin, a representative in a municipal-level People’s Political Consultative Conference, submitted to that body — which advises parliament — a proposal for cutting what he called the “steamed bun tax.” “The steamed bun is a daily necessity for many people, and it’s just not right to pay high taxes on it,” he told Reuters. In truth, there is no levy targeted just at steam buns. Pan’s contention was that the buns should be treated as a grain product, which is assessed a 13 percent value added tax, rather than as a processed food, charged a 17 percent VAT. He touched a chord with his proposal, fuelling widespread discussion in Chinese media and prompting local tax authorities to defend their position and explain they did not have the power to make changes.


Pan’s action was the latest sign that rising public grumbling about taxes is causing the Chinese government to pay attention — and sometimes making it change policies.

A week before the parliament opened, the State Council, or cabinet, said an annual vehicle tax would be 31 percent less than planned, following strong opposition from car owners.

The government has also taken only tiny steps toward introducing a property tax, wary of a backlash from homeowners.

“These are specific and minor examples of progress, but they won’t change the overall trend of an increasing tax burden on individuals and firms,” said Li Weiguang, a professor at the Tianjin University of Finance and Economics.

Li has been one of the key advocates of reforming China’s fiscal system.

“The government can do whatever it wants with its budget and taxation, without any checks. That’s really terrible,” he said.

Such calls for policy change are rare in China. Criticism instead usually centers on the economic distortions supposedly caused by taxation.

Zong Qinghou, the billionaire boss of Chinese drinks company Wahaha and a parliamentary delegate, followed that tack in his policy proposal to the National People’s Congress.

“In the distribution of income, the state has taken too much, while companies and residents have taken too little. As such, how can we effectively boost domestic demand?” he asked.

“Cutting taxes for ordinary people is the most direct and effective way,” he said.


There is powerful evidence to suggest that the government’s share of total income, though not formal taxation, is too high in China.

While the economy has grown by an annual average of 10.5 percent over the past decade, government revenues have increased by an average 20.1 percent a year during that time.

That has directly contributed to imbalances in the Chinese economy. Mirroring a fall in the share of national income going to workers, consumption has gone from 46.4 percent of GDP in 2000 to 35.6 percent in 2009, abnormally low for a peacetime economy. Investment — a reflection of the government’s spending power — rose to 47.7 percent of GDP from 35.3 percent in the same period.

“The system has to be reformed, otherwise China’s economic transformation won’t be realized,” said Zhang Xiaojing, a researcher with the Chinese Academy of Social Sciences.

Beijing will soon move in that direction by raising the minimum threshold for income taxes from the current level of 2,000 yuan ($305) a month. Local media reports say it may be lifted to 3,000 yuan, but critics call for more aggressive change. Zong of Wahaha has called for the floor to be set at 5,000 yuan.

There is no talk of lowering existing income tax rates. In China’s graduated system of personal tax, the rate for the lowest bracket is 5 percent.

To be sure, cutting taxes is only a small part of what Beijing must do to stimulate consumption. Boosting wages, speeding up the development of cities and building a stronger social safety net are also crucial ingredients.

“The key question is how much the government will do. If the government does a lot of these things, the situation will be more promising,” said Wang Xiaolu, a deputy director of the National Economic Research Center in Beijing.


Forbes magazine ranked China second in its 2009 “tax misery index,” behind only France. Beijing questioned the methodology and defended its position.

Xiao Jie, chief of the national tax administration, wrote in an article in October that the government’s real tax and fee revenues accounted for 30 percent of gross domestic product, well below an average of 43 percent in developed economies.

Part of the problem is that tax collection is still patchy, as one entrepreneur surnamed Fang, who owns a small translation firm in Beijing, can attest.

“My business would go bust if I didn’t do tax planning,” she said, using a common euphemism for evading taxes.

But as Beijing moves to close loopholes and introduce new taxes, such as on property, it will find that the path could be more fraught than imagined.

Netease, one of the country’s main web portals, published an unsigned commentary earlier this year which argued that it was time for the parliament to exercise more oversight of taxation.

“Citizens place their trust in the nations’ representatives to provide the goods and services that they need but don’t have the power to provide themselves. That is to say, taxpayers pay taxes for their own benefit,” it said.

Public appeals will be instrumental in bringing about change, said Wei Jie, an economics professor at Tsinghua University.

“Without big external pressure, there is no way the government will go against its own interests,” he said.

($1=6.568 Yuan)

Editing by Don Durfee and Richard Borsuk

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