Export tax readjustment aims at transforming the mode of production
Source: People's Daily Online Date: 2006-08-09
A recent research made by the prediction research center under the Chinese Academy of Sciences has pointed out that it is imperative to readjust the export tax policy. Those products that cause severe pollution and cost more energy and resources will get little tax back or not get any tax back at all after being exported.
Lin Yifu, director of Chinese Economic Research Center in Peking University said it is necessary for China to readjust her tax policies on export, either decrease the returned tax or cancel the tax returning to exporters.
In order to encourage export, China implemented the policy of paying back the tax to exporters in 1985. In 1994, China reformed its tax policy for export products and charged no tax for added value of export. During the Asian Financial Crisis in 1998, China strengthened the policy in order to keep RMB steady. But by 2003, the tax rate returning to exporters has been decreased by 3 percentage point. And in 2004, China formed a new mechanism that the central and local finance will share the burden of paying back the export tax to exporters.
Now China has become the third largest trade power in the world with foreign exchange reserves ranking the first in the world and seeing foreign trade surplus every year. China's tax paying back to exporters reached 300 billion yuan in 2005, accounting for 1.8% of the total GDP. The tax China has paid back to the exporters has amounted to 1.19 trillion yuan or about 140 billion US dollars while the tax revenue from private business only amounted to 770 billion yuan. This means that the returned tax to exporters was in fact a subsidy for foreign consumers, but not Chinese consumers and China's benefit from its export is much less than it should be. The returned tax also makes the price of the goods very low which often easily leads to trade friction with foreign countries. Thus, it's imperative to readjust the tax policy for exporters.
In 2005, China has already reduced the returned tax to exporters who are engaged in Iron and steel, coal, crude oil and refined oil.
In the long run, experts think to reduce or cancel tax paying back to exporters is conducive to alleviating the pressure to appreciate RMB. It's estimated that RMB appreciation pressure stands at 3.5% and if all the tax paid back to exporters is reduced or canceled, this pressure will disappear too.
It is also helpful for increasing the overall competitiveness of the Chinese enterprises. For example in textile industry, the returning tax rate has decreased from 17% to 13%. This will make enterprise to take active measures to improve its competitiveness so that they might reduce the quantity of the export but get the quality of the return.
It is also conducive to increasing domestic demand and improving people's living standards.
Of course, experts warn that in tax reform, one cannot take only one identical policy to all the products. It must be specific to different industries and products.
"The reform of policies on the returning tax to exporters mainly aims at transforming the mode of production and leading to a more reasonable economic structure."
Zhao Qingming, a researcher under the Construction Bank of China said. He held that to reduce the tax returning to the exporters will force technical companies to further renovate their technology so that the economic structure will be more rational than before.
"The export tax reform should also consider the factor of developing circular economy and alleviate the pressure for environment and energy and resource consumption. For those high energy and resource consumption product, the tax returning rate will not only be reduced, but even be cancelled." said Zhao.
As for the readjustment technique, experts propose readjustment be done in small scale first and give enterprise some time to be prepared for such a process. It will take some time for enterprises really adapt to the situation that they will not get that much tax back. Therefore, the new adjustment should be very specific for different products.
