Tax cut needed in China's growth-boosting efforts: CICC

Apart from monetary easing moves, there is room for China to achieve faster and more balanced growth by cutting the private sector's tax burden, a major Chinese investment firm said Monday.

China's central bank has cut benchmark interest rates and the required reserve ratio several times since November in order to boost growth, with growth of fiscal expenditures picking up. However, the tax burden for companies remains high, and personal income tax received continues to accelerate at a much faster pace than the growth rate of personal income or nominal GDP, according to the latest report by China International Capital Corporation (CICC).

"The high tax burden on China's corporate sector hampers investment and innovation. A high tax burden is one of the important reasons the corporate sector is reluctant to invest," it said.

A combination of the heavy macro tax burden, government preference for saving, and the dominance of indirect taxes have all led to an excessively high corporate tax burden, discouraging investment and R&D, with the corporate sector taxed 47.4 percent of pre-tax income, it noted.

There is much room for the government to reduce the private sector tax burden through more efficient deployment of its savings and assets of state-owned enterprises (SOEs), said the CICC.

A new round of SOE reform to lift SOE profitability, dividend payout ratios, or even outright transfers of SOE shares to the social pension fund could help cut corporate tax rates or social security contributions, it said.

China's economy expanded 7 percent year on year in the second quarter, unchanged from the first quarter, but well below previous double-digit growth due to weak domestic and foreign trade demand. Endi