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Chilling tax message

(China Daily)
Updated: 2009-09-18 08:37

Fiscal prudence remains a virtue even when the ongoing global economic crisis entails a public spending spree to revive domestic growth.

However, while doing their best to ensure that the government can make ends meet as expected, the tax authorities must be careful enough not to push taxpayers too hard to kill the "green shoots" of a consumer-led recovery.

It is reported that the Ministry of Finance recently revised upwards the annual target of 8-percent increase in fiscal revenue in order to keep the country's deficits below 3 percent of the gross domestic product.

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Separately, some local tax authorities were reported to have tried to collect income tax from mooncakes that some employers give out as a sort of employee welfare for the upcoming Mid-Autumn Festival.

Rising public complaints against such moves do not mean that the means and the end of taxation officials are totally unjustifiable.

On the one hand, the Ministry of Finance's deep concern about the budget deficit displays the government's commitment to financial discipline. On the other hand, mooncakes are literally subject to personal income tax as well as other employee welfare offered by the employers.

The problem is that such efforts to tighten tax collection are so ill timed that they may not only dampen the new-found consumer enthusiasm but also undermine much of the preceding effort to stimulate growth.

The Ministry of Finance insisted that China was still facing great fiscal pressures, despite four months of revenue increases.

China's fiscal revenue in August soared by more than one third over the same month last year, bringing the total fiscal revenue in the first eight months to 4.59 trillion yuan ($675 billion), up 2.6 percent year on year.

Though that is still below the annual target of 8 percent, a strengthened economic recovery will largely guarantee robust fiscal revenue growth in following months.

Yet, the turbo-charged growth of domestic consumption tax indicates that the overall tax policy has failed to work as a propeller of consumption growth.

Admittedly, a 75-percent surge in domestic consumption tax revenues during the first 8 months highlighted the resilience of Chinese consumers amid the global recession.

Meanwhile, it also revealed the bitter fact of how poorly taxation policies have so far been adjusted to serve consumers at a moment when the country is in dire need of consumption-led growth.

The actual sum of income taxes that can be collected from mooncakes will be tiny. But the negative impact that it exerts on consumers could be vastly more than tax collectors expect.

The tax authorities should better align their duties with the larger need of Chinese consumers and the national economy.

(China Daily 09/18/2009 page8)