Officials eye consumer, vehicle taxes

China is likely to shift its tax focus away from the production sector in a bid to cut overcapacity and boost consumption, a former tax official said.

Xu Shanda, former deputy director of the State Administration of Taxation, said a plan to move the taxation system's focus more toward retail is being studied, as well as other possible reforms.

Such a move could include a vehicle purchase tax, Xu said on Wednesday at a forum in Beijing.

The plan - designed to ease the investment impetus on local authorities, getting them to boost revenue by promoting consumption as opposed to building more factories - also is in line with the country's economic transformation, Xu said.

"If such a plan is rolled out, it will ease costs for manufacturers and help cut prices on consumer goods by a significant amount, though the taxation in the sales sector will increase," Xu said.

Xu's suggestions echoed those of Finance Minister Lou Jiwei, who has said that shifting taxes from production to consumption is the future direction of fiscal reform.

In an article explaining fiscal reforms outlined last week after a meeting of Party leaders, Lou said tax rates will be adjusted to reduce "the government's dependence on the production link, which can help solve the overcapacity problem by avoiding building redundant projects."

In the meantime, Lou said, luxury goods and products that use up too many resources and too much energy will face higher rates in the sales sector, while some consumption tax rates also will be adjusted.

Gao Peiyong, director of the National Academy of Economic Strategy at the Chinese Academy of Social Sciences, said that more than 90 percent of China's tax revenue now comes from companies, but they are being transferred to customers, so it's hard to calculate the tax burden.

"A lot of problems in China, such as social disparity and wasting of resources, have largely resulted from a mismatch between the current tax system and economic development," according to Lou.

To practice the "pillar role" of fiscal reform in running the country as required by the guideline, the finance minister vowed to build a taxation system that advances both social equity and market integration.

Among other reforms touched on by Lou, a new property tax - considered an effective way to regulate an overheated housing market and which began as a 2011 pilot program in Shanghai and Chongqing - will progress to legislation after thorough discussion, he said.

"The tax burden on the transaction and construction of a property will be eased, while that on the possession of a property will be increased," he said.

A higher tax rate also is likely for resource usage.

The assessment on oil and gas production was shifted to value from volume in a move to lift the tax rate and reduce waste, and Lou noted that the policy also will be applied to coal, which remains the largest energy source for China.

Meanwhile, taxes on other resources that are still levied on a volume base also will be raised, to replace fees that were charged on these resources, he said.

In a similar move, Lou said, the environmental protection fee will be shifted to taxation, in order to be levied in a more regulated manner.