China Should Merge Value-Added Tax Tiers, Ministry of Finance Expert Says
Liao Shumin
/SOURCE : Yicai
China Should Merge Value-Added Tax Tiers, Ministry of Finance Expert Says

(Yicai Global) Dec. 4 -- China recently transitioned from an operating tax to a value-added tax, lowering taxes by more than USD150 billion (CNY1 trillion), Liu Shangxi, president of the Ministry of Finance's Chinese Academy of Fiscal Sciences, said after the US Senate passed a tax reform bill reducing corporate tax from 35 percent to 20 percent.

"China differs from the United States in that the tax system in China is based on indirect taxes," said Liu. "The next step for China to add to its agenda is reducing the number of value-added tax brackets."

The US stresses direct taxes, while China focuses on indirect taxes, Liu said. While the US reduced corporate tax, China should adjust indirect taxes, especially the value-added tax, the largest tax in China, said Liu. Following China's move from an operating tax to a value-added tax, the country has multiple value-added tax rate tiers, and this is not conducive to fair competition in the market, he said. Reducing and merging value-added tax rates may have a greater impact than income tax reform, he said.

Improving China's tax system is a top priority, said Liu. "In order to allow the market to play a decisive role in the allocation of resources, promote the formation of a unified national market and establish a fair competition environment, the most important thing is that the overall tax system shall be more reasonable and adapt to further development with tax cuts included in the reform process," Liu said.

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Keywords: Tax Reform , US , Ministry of Finance , China , Value-Added Tax