Report calls for indirect tax cut

To stimulate growth dynamic, China should further ease the tax burden by reducing indirect taxes while increasing direct taxation, said a report by the Center for Macroeconomic Research of Xiamen University on Sunday.

The report said that a tax system in which indirect tax, such as value-added tax, business tax and consumption tax, account for the majority, encouraging businesses to pass on their tax burden to consumers and curb consumer demand. It is also not conducive in terms of income redistribution.

Indirect taxation accounted for 61.4 percent of China's total tax in 2014, according to the center's calculation — that means direct tax is just 59 percent of indirect tax.

That is lower than in most developed economies. Direct tax in an average high-income country is 82 percent that of indirect tax, while in the United States is 13 times indirect taxation. In China this ratio has already increased from 48 percent in 2010.

Wang Yanwu, an associate professor at Xiamen University and an author of the report, said although the direct taxation's share is rising, the trend is due to the slowdown in economic growth, and is therefore not stable. To make the trend stable, China should simplify indirect taxation and lower the tax rate.

On the other hand, China should increase the share of direct taxation by reforming the property tax and individual income tax, while reducing administrative spending and increasing social expenditure such as on education, social security and medication.

The report came amid renewed hope over tax cuts after the State Council last Wednesday expanded the scope of tax breaks for micro and small companies.

Broad taxation in China last year was 37.18 percent of GDP, a rate that is comparable with high-income countries, which have much better social welfare. A survey by the center among 100 economists showed 86 percent of economists think easing the tax burden for enterprises and encouraging the role of private firms should be the answer to the slowdown in economic growth.