In order to achieve the long-term goal of common prosperity, from the perspective of the taxes involved in the primary distribution, redistribution, and tertiary distribution, consumption tax is the tax of the primary distribution, and personal income tax and property tax are the taxes of the redistribution nature, or the focus of tax reform .
On August 17, 2021, the tenth meeting of the Central Finance and Economics Committee was held. The meeting put forward reform keywords such as “common prosperity”, “initial distribution, redistribution, and three distributions”. The tax reform is one of the important ways to promote common prosperity. Therefore, this article analyzes my country’s tax structure and international comparisons, and discusses future tax reforms centered on the main line of common prosperity.
In terms of international comparison of tax structure, my country’s direct taxes account for a relatively low proportion of about 39.8%, while indirect taxes account for a relatively high proportion of about 46.3%, and direct taxes have a relatively large income distribution effect. Among the direct taxes, my country’s income tax is relatively low, and the proportion of personal income tax and corporate income tax is quite different. The proportion of property tax is relatively low. In 2019, the proportion is only 8.0%, which is at an intermediate level compared with emerging economies. In terms of indirect taxes, my country’s value-added tax accounts for 39.5% of tax revenue, which is significantly higher than that of developed economies, and is also the highest level among emerging economies; consumption tax accounts for 8.0%, which is consistent with most developed economies and is in line with emerging economies. The body is relatively low.
In order to achieve the long-term goal of common prosperity, from the perspective of the taxes involved in the primary distribution, redistribution, and tertiary distribution, consumption tax is the tax of the primary distribution, and personal income tax and property tax are the taxes of the redistribution nature, or the focus of tax reform . Specifically, appropriately increase the contribution of personal income tax to taxation, strengthen the income distribution adjustment effect of personal tax; appropriately increase the proportion of property tax, consider gradually levying real estate tax and inheritance tax; moderately increase the scope of consumption tax collection to increase the adjustment effect of income distribution . In addition, consideration should also be given to adjustments to preferential tax policies for donations.
On August 17, 2021, the tenth meeting of the Central Finance and Economics Committee was held. The meeting pointed out that “promote common prosperity in high-quality development, correctly handle the relationship between efficiency and fairness, build basic institutional arrangements for the coordination of primary distribution, redistribution, and three distributions, increase taxation, social security, transfer payments, and other adjustments and improve Accuracy, expand the proportion of middle-income groups, increase the income of low-income groups, reasonably adjust high incomes, and ban illegal income…”. Tax reform is one of the important ways to promote common prosperity. In the future, a series of tax policy reforms may be adopted to adjust income distribution and increase the income of low- and middle-income groups, which will help achieve the long-term goal of common prosperity. Therefore, this article analyzes my country’s tax structure and international comparisons, and discusses future tax reforms centered on the main line of common prosperity.
1. my country’s taxation system and income distribution effect
In order to measure the income distribution effect of my country’s tax structure, we divide tax revenue into direct tax and indirect tax according to whether the tax burden can be passed on, so as to compare and analyze the tax structure.Among them, direct taxes mainly include income taxes (individual income tax, corporate income tax) and property taxes (real estate tax, deed tax, vehicle purchase tax), and indirect taxes mainly include domestic value-added tax, domestic consumption tax, customs, business tax and other turnover taxes. In order to facilitate international comparison in the following text, both direct tax and indirect tax are analyzed by selecting the main tax types that account for a relatively large proportion of fiscal revenue.
In terms of direct tax and indirect tax structure, my country’s direct tax will account for about 39.8% of tax revenue in 2020, and indirect tax will be about 46.3%.In terms of direct tax, income tax accounted for 31.1% of tax revenue, of which personal income tax and corporate income tax accounted for 7.5% and 23.6% of tax revenue respectively. Property tax accounted for a relatively small proportion of tax revenue, only 8.7%. Among them, deed tax, vehicle purchase tax, and real estate tax accounted for 4.6%, 3.0%, and 1.8% of tax revenue respectively. The direction of future tax reform is to increase the proportion of direct tax. In terms of indirect taxes, value-added tax is the largest tax category, accounting for 36.8% of tax revenue in 2020, while consumption tax and tariff account for 7.8% and 1.7% of tax revenue respectively.
From the perspective of the income distribution effect of taxation, the income distribution effect of direct taxation is relatively large, especially personal income tax. In 2020, the proportion of this tax in my country is only 7.5% of tax revenue, which is relatively low.Since direct taxes generally levy taxes on income and wealth and are not easy to pass on the tax burden, they are considered to be more direct in adjusting income distribution. Although the proportion of direct taxes in my country has been continuously increasing, the overall proportion of indirect taxes is still relatively high. Therefore, the role of the tax system in income distribution needs to continue to be strengthened. At the same time, the income tax is mainly corporate income tax, with personal income tax accounting for only 7.5%.
In addition to income taxes, property taxes in direct taxes also have a more direct role in income distribution regulation. Although the proportion of property taxes in tax revenue in 2020 will reach the highest value since 2007, the proportion is relatively small, only 8.7%.Most property taxes are taxed on properties such as real estate, inheritance, and fixed assets, and will naturally be levied on high-income groups. While supplementing fiscal taxes, transfer payments can be used to supplement the income of low-income groups to increase income. The role of distribution regulation. By 2020, the proportion of property tax in my country has been low. The main reasons are: on the one hand, property tax, one of the main taxes, has only been levied in some pilot cities, and the nationwide property tax legislation has not yet been completed; on the other hand, as of 2020, my country’s inheritance tax has neither been specifically legislated, nor has it been levied. No levy.
In the indirect tax (turnover tax), the consumption tax has a relatively large income regulation effect. By 2020, the proportion of this tax in my country’s tax revenue will be 7.8%.Since consumption tax is a tax on specific goods, the main targets are high-energy consumption, high-end consumer goods and goods that are not suitable for excessive consumption, including gasoline, automobiles, high-end cosmetics and jewelry, tobacco and alcohol, etc. The tax burden is mainly high income Groups can play a certain regulatory role in income distribution. However, from the perspective of the proportion of consumption tax in tax revenue, it is 7.8%, and the role of income regulation is still limited.
2. International Comparison of Tax Structure
This part will make a horizontal comparison of the taxation situation between my country and other economies, combine my country’s reform direction, realize the long-term goal of common prosperity, and provide international experience for my country’s tax reform.
Taking into account factors such as sample size, statistical caliber, data availability, time consistency and other factors, this article adopts different processing methods in database selection and data comparison to minimize the comparison error.In terms of database selection, due to the large sample size required in this article, there are differences in the statistical calibers between different countries. Based on the sample size and the comparability of statistical calibers, this article preferentially uses the OECD database and the IMF database. Both types of databases contain the required However, in terms of tax structure and its details, only the OECD database meets the needs. It not only includes the existing OECD member economies, but also includes some non-OECD member economies, but the timing of the data disclosure will vary. For certain differences, this article will try to select the data of the same year for horizontal comparison when comparing. In addition, although my country’s data is also included in the OECD database, the time series of the data is relatively short and the disclosure time is relatively late. Based on this, this article uses the original data of the National Bureau of Statistics and the Ministry of Finance as the original data. Data sources, and made adjustments that are as consistent as possible with the OECD statistical caliber during the comparison to minimize the comparison error.
In terms of sample selection, this article selects 33 OECD economies that have disclosed relevant data (a total of 37, excluding 4 economies whose data has not been updated) and 4 emerging economies that have not joined the OECD but are included in the OECD database. (Brazil, Egypt, Argentina, the Philippines), and separate the G7 advanced economies in the OECD economies.
In terms of data timing, when analyzing my country’s tax structure, the latest data that can be selected is not 2020; when making international comparisons, the latest data for G7 developed countries and most OECD economies is 2019, while most emerging economies The latest data of is 2018, so the data classification of 2019 and 2018 are used for comparison. In order to facilitate the comparison of the tax revenue structure of different economies, we need to re-adjust the classification and classification of my country’s data based on the tax indicator classification standards in the OECD database.
For the above classification methods, two points need to be paid attention to when making a horizontal comparison:
First, on social security income.Since my country’s social security income is separately included, when making structural comparisons, I use tax data that does not include social security income to compare and calculate indicators for international tax data.
Second, regarding the selection of comparative data and indicators.Due to the differences in tax systems and tax types in different countries, based on the availability of data and the comparability of classifications, this article mainly selects tax types that account for a higher proportion of tax revenue and are more consistent in classification. The selected tax types and classifications are: direct tax (personal income tax, corporate income tax, property tax), indirect tax (domestic value-added tax, domestic consumption tax, business tax).
In terms of the distribution of tax types, compared with G7 advanced economies and some emerging economies, from the data of 2019 and 2018, the main differences between my country and other economies are:
First, the structure of direct tax and indirect tax is quite different. my country’s direct tax is relatively low while indirect tax is relatively high.From the comparison with emerging economies, the overall structure of direct taxes and indirect taxes between my country and Argentina and Brazil are similar, but there are certain differences in specific tax types. However, compared with emerging economies such as Colombia, Egypt, Mexico, and South Korea, my country’s direct tax The proportion is still low. From the comparison with developed economies, the structural differences are more significant. In 2019, the proportion of direct taxes in my country was about 38.2%, while the proportion of direct taxes in advanced economies was more than 50%. For example, the proportion of direct taxes in the United States and Canada reached more than 70%. my country’s indirect taxes accounted for 47.4%, while the United States and Canada only accounted for 15.1% and 20.7%, respectively. Other developed economies are basically between 30% and 35%.
Second, in terms of direct taxes, the proportion of income tax in my country is relatively low, and the proportion structure of personal income tax and corporate income tax is quite different.According to data comparison, the proportion of personal income tax in tax revenue in my country is much lower than that of typical developed economies and lower than most emerging economies; while corporate income tax is much higher than that of typical advanced economies and similar to most emerging economies.
In terms of personal income tax, my country’s personal income tax accounted for 6.6%, while developed economies accounted for more than 20%. Except for Argentina and Colombia, which are similar to my country, other emerging economies are higher than ours and differ greatly. Among the advanced economies, the personal income tax of the United States, Germany, and Canada accounted for 55.2%, 44.1%, and 42.5%, respectively, while other developed economies are basically between 30% and 40%. Of course, although the overall personal income tax of the United States, Germany, and Canada is relatively high, thanks to the social security system and other reasons, the final disposable income of the residents of the three countries is still relatively high, and the corresponding public services are also relatively strong. First of all, from the perspective of the social security system, the expenditures that are more closely related to the cost of living of residents are social security and medical expenditures. The expenditures for social security and health in the fiscal revenue of the United States, Germany, and Canada account for 44.5% and 60%, respectively. , 57.0%, and my country’s 35.9%. Secondly, the highest marginal tax rates of the three countries’ individual taxes are 37%, 42%, and 33% respectively, and there are more tiers. The overall tax structure is more biased towards high-income groups. Although the highest marginal tax rate in my country is as high as 45%, the income types of many high-income groups are not included in the scope of this collection. Finally, the proportion of corporate income tax in the three countries is relatively low, which reduces the cost of living of residents while reducing business costs.
In terms of corporate income tax, my country’s corporate income tax accounted for 23.6%. In developed economies, except Japan and Canada, which accounted for 21.6% and 13.1%, other G7 developed economies were below 10%. Compared with developed economies, my country’s corporate income tax The negative is high. Except for Argentina and Brazil, which account for a relatively low proportion of emerging economies, other emerging economies are similar to or slightly higher than my country.
Compared with developed economies, the proportion of property tax in my country is relatively low, accounting for only 8.0% in 2019, which is at an intermediate level compared with emerging economies.The countries with relatively high property taxes are the United States, South Korea, and the United Kingdom, accounting for 16.1%, 15.6%, and 15.4% respectively. Canada, Japan, and France account for about 13%. China and Italy are basically the same, while Germany’s property tax The proportion is relatively low, only 4.5%. Countries with a relatively high proportion of emerging economies are South Korea, the Philippines, and Argentina, which accounted for 15.6%, 15.4% and 11.8%, respectively, while Egypt and Mexico accounted for a relatively low proportion of only 0.7% and 2.3%.
Third, in terms of indirect taxes, my country’s value-added tax accounts for 39.5% of tax revenue, which is significantly higher than that of developed economies and the highest level among emerging economies. Consumption tax accounts for 8.0%, which is consistent with most developed economies. Low compared with emerging economies.Since my country is mainly based on indirect taxes, the value-added tax accounted for 39.5% in 2019. Among the advanced economies, Germany (29.4%) and the United Kingdom (26.4%) accounted for a relatively high proportion of the economy, and Canada ( 15.6%), the United States has no value-added tax, other developed economies are between 20% and 25%, and most emerging economies are between 20% and 30%. In terms of consumption tax, with the exception of the United States and Canada, which account for relatively low proportions (4.1% and 4.4%, respectively), the proportions of other developed economies are basically the same, ranging from 8.0% to 9.0%, while most emerging economies have a higher proportion. Accounted for 10% and above.
3. Prospects for my country’s tax reform
Through international comparison and analysis of my country’s national conditions, my country’s tax structure has room for further optimization and adjustment. Under the vision of common prosperity, from the perspective of the taxes involved in the primary distribution, redistribution, and tertiary distribution, consumption tax is the tax of the primary distribution, and personal income tax and property tax are the taxes of the redistributive nature, or the focus of tax reform.
1. Appropriately increase the proportion of direct taxes
By 2020, my country’s taxation system will be dominated by indirect taxes, but the income distribution and adjustment ability of indirect taxes is weak. Therefore, whether from the perspective of international comparison or income distribution adjustment, an appropriate increase in the proportion of direct taxes is an important direction for the reform of the tax system. This is also clearly stated in the “14th Five-Year Plan”.
In terms of specific operations, increasing the proportion of direct taxes is nothing more than two ways: increasing the proportion of direct taxes and reducing the proportion of indirect taxes. The means of increasing direct taxes include increasing the proportion of income tax or property tax, and the means of reducing indirect taxes include reducing the proportion of value-added tax and consumption tax. The following is an analysis from the specific tax types.
(1) Personal income tax
Appropriately increase the contribution of personal income tax to taxation, and strengthen the income distribution adjustment role of personal tax.The “Draft Outline of the Fourteenth Five-Year Plan and 2035 Long-Term Goals” issued by the State Council in March 2021 (hereinafter referred to as the “14th Five-Year Plan Outline”) clearly stated that the scope of individual income tax should be expanded and the tax rate structure optimized. Specifically, the direction of individual tax reform mainly includes the following points:
First, the scope of the syndrome is expanded.At present, my country’s personal taxation has been reformed from the previous taxation method to a combination of classification and comprehensive collection. Specifically, classified collection is to distinguish the source of income for various types of income of taxpayers, adopt different deduction standards and tax rates, and calculate taxes and fees separately. The income included in the classified collection is: operating income; income from interest, dividends, and bonuses; income from property leases; income from property transfers; incidental income. The comprehensive collection is to treat all types of income of taxpayers as a whole, adopt uniform deduction standards and tax rates, and uniformly calculate taxes and fees. By 2020, the income included in the comprehensive income range in my country is: income from wages and salaries; income from labor services; income from author’s remuneration; income from royalties.
In the future, the individual tax reform will pay more attention to the adjustment of income distribution, and will gradually transition to adopting a comprehensive income method for all income and expanding the scope of comprehensive income. First of all, operating income may be included in comprehensive income, because operating income mainly refers to the income of individuals or individuals engaged in business activities, which has the nature of labor income. Second, the property income and capital income of high-income groups are gradually included in the scope of comprehensive income. The reason is that the current property income and capital income are subject to a uniform proportional tax rate, which is 20%, which is higher than the highest marginal tax rate of 45% in comprehensive income. Lower. Incorporate more income into the unified progressive tax rate calculation system to reduce the tax avoidance behavior of individuals in the classified collection method. At the same time, expanding the scope of syndrome income is conducive to realizing tax cuts for low- and middle-income groups, thereby increasing their disposable income, which has a certain stimulus effect on personal demand, and is also in line with the current policy requirements for stimulating domestic demand.
Second, optimize the tax rate structure and focus on the incentives for scientific and technological innovation talents.Appropriately reducing the high marginal tax rate for scientific and technological innovation talents is conducive to the accumulation of scientific and technological human capital and the development of scientific research and innovation at this stage.
Third, increase the intensity of special additional deductions, and implement different tax policies with individuals and families as the tax subjects.In 2018, my country carried out the reform of special additional deductions for personal tax, which reduced the tax burden of families to a certain extent. It is also a reform measure that comprehensively considers the tax burden on the family unit. In the context of an aging population and insufficient residents’ willingness to give birth, consideration can be given to gradually increasing special additional deductions in areas such as elderly care, education, and childcare.
(2) Corporate income tax
It is unlikely that the proportion of corporate income tax will increase.In our country, corporate income tax is the largest tax in direct taxes. Although my country has been reducing corporate tax burdens in the past two years, compared with developed economies, my country’s corporate tax burdens still appear to be slightly higher. Therefore, the future direction of corporate income tax reform may be biased towards guiding the adjustment of industrial structure through structural tax preferential policies and encouraging enterprise innovation. The “14th Five-Year Plan” proposes to increase the percentage of super deductions for manufacturing companies and innovative companies, reduce tax burdens, and encourage the development of industrial chains and technological innovation.
(3) Property tax
Appropriately increase the proportion of property tax, and consider gradually levying real estate tax and inheritance tax.The proportion of property tax in my country is relatively low and there are fewer types of taxes levied. Property tax reform in other international economies has been in progress. The reform direction is biased towards the increase of tax types and tax rates. This is also the direction of my country’s possible property tax reform in the future.In terms of real estate tax,According to a survey conducted by the People’s Bank of China on the assets and liabilities of urban households in 2019, “Chinese urban household assets are mainly physical assets, with an average household of 2.53 million yuan, accounting for 80% of total household assets, and housing is an important component of household physical assets. “. Physical assets are a potential source of property tax. Therefore, the “14th Five-Year Plan” clearly proposes to promote real estate tax legislation.
Since 2021, policies and conferences have repeatedly mentioned real estate tax reform, which also heralds the acceleration of real estate tax legislation and reform. On May 11, responsible comrades of the Ministry of Finance, the Budget Working Committee of the Standing Committee of the National People’s Congress, the Ministry of Housing and Urban-Rural Development, and the State Administration of Taxation hosted a symposium on the pilot real estate tax reform in Beijing to listen to opinions on the pilot real estate tax reform. Whether it is meetings or planning documents, the issue of real estate tax legislation and reform has been frequently mentioned this year. At present, the urban land use tax is exempted for individual residences, and the property tax is temporarily exempted for personal use. The levy of real estate tax has only been piloted in some residential buildings in Chongqing and Shanghai. The scope of the pilot property tax is relatively small. The real estate tax pilot and the scope of taxation are expected to be further expanded, especially the levy of stock real estate. However, in order to protect the basic living needs of residents, the real estate tax exemption scope may be determined based on indicators such as construction area or number of units.In terms of inheritance tax,my country has not yet levied an inheritance tax, and as of 2019, more than 100 countries have imposed an inheritance tax. The inheritance tax is one of the taxes that play the role of income redistribution, or one of the directions of tax reform.
2. Indirect taxes have risen and fallen
Indirect taxes are mainly turnover taxes. From 1990 to 2020, the proportion of indirect taxes in my country has been relatively high. Among them, the proportion of value-added tax is at a very high level in international economies.
(1) Value-added tax
Appropriately reduce the proportion of value-added tax and increase the enthusiasm of enterprises.As the largest tax category in my country, value-added tax accounted for 39% of tax revenue in 2019, which is much higher than that of developed economies. The main taxpayers of value-added tax are enterprises. A moderate reduction in the proportion of value-added tax will increase the proportion of direct tax accordingly, which is conducive to reducing The tax burden of enterprises increases their enthusiasm for production. In particular, the R&D and innovation capabilities in my country’s manufacturing industry are insufficient. Therefore, in the corresponding taxation policy, tax incentives can be considered to encourage the innovation and R&D of relevant manufacturing enterprises and support the transformation and upgrading of manufacturing enterprises.
(2) Consumption tax
Appropriately increase the scope of consumption tax levy and increase the role of income distribution regulation.Through international comparison, it can be seen that my country’s consumption tax is relatively low, and the scope of consumption tax is limited, which is not conducive to the role of income distribution.First, the scope of consumption tax can be appropriately expanded.By 2020, the taxable scope mainly includes 15 tax items including tobacco, alcohol, cosmetics, oil, and automobiles. For high-end luxury goods, high-end consumer activities, or high-polluting goods, such as high-end furs, luggage, electronic products, and high-end performances, will be included in the scope of levy.Second, the collection of consumption tax has moved backward.At present, most of the consumption tax collection links are the production links, which are burdened by enterprises and local incomes are limited. In 2019, the State Council issued the “Adjustment of the Reform and Promotion of Central and Local Revenue Division after Implementing Larger Tax Cuts and Fees”, which clearly stated that some of the current consumption tax items collected in the production (import) link will gradually be moved to the wholesale or retail link for collection. . By 2020, some consumer goods, such as high-end jewelry, have been levied in the retail link, but the main tax items that account for a relatively large consumption tax, such as tobacco, alcohol, refined oil, and cars, have not been fully implemented in the collection process. This is also the focus of the future. The key directions for advancing reforms need to be carried out. At the same time, the “14th Five-Year Plan” outline clearly stated that it is necessary to adjust and optimize the scope and tax rate of consumption tax, promote the backward movement of the collection link, and steadily demarcate localities. This means that as the consumption tax reform and income distribution division proceed simultaneously, local tax sources and income will increase.
In addition to the related tax reforms involved in the primary distribution and redistribution, the three distributions also involve related taxes, mainly tax preferential policies related to donations. However, my country’s current policies play a limited role in the three distributions. Group donations and assistance have limited incentives. This aspect is also one of the tax reform directions that need to be paid attention to in the future.
Authors of this article: Hu Xiaoli, Guo Yuwei, Political Commissar Lu, Source: Industrial Research Macro, original title: “[Macroeconomic]Tax Reform Direction under Common Prosperity”
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