Tax reform plan aims to balance revenue sharing

A plan to reform China's consumption tax has been submitted to the State Council, the country's cabinet, media reported on Monday, a move analysts said will help optimize the country's tax structure and balance the central and local fiscal revenues.

According to the plan, industries with high energy consumption and high pollution, as well as the high-end service industry will be added to the list of consumption tax, news portal yicai.com said Monday.

The tax for industries which harm environment and fair competition will be raised gradually, the report said.

High-end service firms which include medical services and the catering industry will be levied consumption tax for the first time, passing the cost to consumers, who are often from high-income class, to narrow the income gap, Jiang Zhen, a research fellow at the National Academy of Economic Strategy under the Chinese Academy of Social Sciences (CASS), told the Global Times on Monday.

The current consumption tax, which covers 14 items, is the fourth-largest source of tax revenue in China. And the consumption tax revenue from cigarette, wine, automobile and gasoline accounts for 85 percent of the total consumption tax revenue.

Luxury consumption items such as private aircraft and battery which is harmful to the environment should be added to the consumption tax list under the tax reform, said Cui Jun, a professor at the Renmin University of China.

China expanded a pilot program last year to allow more provinces and municipalities like Beijing and Shanghai to replace business tax with value-added tax.

The pilot program was expected to reduce tax burden of over 120 billion yuan ($19.7 billion) on modern services and transportation sectors, according to official data. The pilot program has reduced the tax income of local governments.

Since revenues from consumption tax were previously turned over to the central government, the new plan is expected to allow the consumption tax to be split between the central government and local governments, Jiang said.