1st LD-Writethru: China's macro tax burden below world average: official

Amid the current social debate over China's tax burden, former Finance Minister Lou Jiwei has queried the World Bank tax indicators that prompted the discussion.

Now head of the National Council for Social Security Fund, Lou told Xinhua that the World Bank micro-methodology differed from standard practice in both scope of indicators and choice of data. He claims that the World Bank method of comparison does not make much sense.

A report late last year by the World Bank and accounting firm PricewaterhouseCoopers (PwC) records the annual taxes and other mandatory contributions that a medium-sized company must pay. The report put China's total tax rate at 68 percent in 2016, much higher than the world average of 40.6 percent.

Lou said that when comparing tax burdens among countries, the key figure is the macro tax burden rate, or the ratio of a country's tax revenue to nominal GDP. In both 2014 and 2015, the macro tax burden in China stood at around 30 percent, lower than the world average.

World Bank lead economist for China John Litwack agrees. Litwack has stated that social security and housing fund contributions weigh heaviest in China's tax burden, taking up 48.8 percent of total commercial profit.

In China all payroll contributions are made by the employer, and are thus counted as 100 percent in the "Doing Business" tax burden computation. In the United States, only around half of payroll contributions are charged to the employer.

"This is one example why Doing Business tax burden indicators may have limited comparability across countries," Litwack acknowledged in an email to Xinhua.

He added that corporate taxes in China are "relatively small," 7.6 percent of taxable profit, while U.S. corporate income taxes account for almost 30 percent of taxable profit.

As China furthers its taxation system reform, replacing business tax with value-added tax, businesses will see more substantial profits, said Lou.

According to China's State Administration of Taxation, businesses have saved some 500 billion yuan (about 72 billion U.S. dollars) through tax deductions in 2016 alone.

"The scale of deductions is larger than we expected," Lou said.

The Ministry of Finance said in December that businesses could expect more tax breaks and fewer administrative fees this year to lower operating costs. Endi