Reflection and Outlook on China’s Tax Reforms in the Xi Jinping Era
Asian Tax Journal Vol. 25 No. 3 (2024), pp. 61-93
Abstract
In this study, considering the lack of a taxation system for ‘data’ that has strong excess revenue capacity and has virtually unlimited burden, as a new tax source that can guarantee Korea’s fiscal soundness, the concept and characteristics of data were examined, and analysis and theoretical review of related laws were conducted. China’s tax reforms always follow the procedural characteristics of ‘policy proposal → pilot implementation → nationwide expansion’ and typically span over a decade. For instance, the ‘利改税’ reform in the 1980s at the onset of the socialist market economy and the ‘營改增’ reform during its development phase in the 2000s. Thus, from this perspective, it seems highly likely that the tax reforms in Xi Jinping’s third term, based on his ‘New Era Chinese－style socialism’ and ‘common prosperity’, will also unfold over at least ten years, focusing on establishing a strong redistribution mechanism centered around personal income tax. Xi Jinping’s third term tax reforms in China can be broadly divided into three areas：① tax reductions to alleviate the tax burden of the middle class and the poor, ② tax reductions related to agriculture and rural areas to promote balanced urban－rural development, and ③ tax incentives to encourage technological innovation and productivity growth. It is particularly noteworthy that China’s tax authorities have been intensifying tax management on rent－seekers to realize ‘common prosperity’. Additionally, while foreign investors were previously granted significant tax privileges to attract capital and technology, there is now a trend of tightening tax base management for non－productive, rent－seeking investments. Even foreign investors involved in real estate development and other rent－seeking activities may face increased tax burdens in the long run. However, massive tax cuts are being implemented for the middle class, the poor, rural areas, farmers, and small and medium－sized enterprises (SMEs) and startups. Especially during the economic challenges posed by Covid－19 and the US－China hegemonic competition, the scope of tax reductions for various economic entities and income groups is being expanded. The Chinese government is expected to continue expanding tax incentives for SMEs, startups, and high－tech companies holding core technologies such as semiconductors. However, industries identified by Xi Jinping and the Chinese Communist Party leadership as contributing to China’s ‘uneven and inadequate development’ are expected to remain regulated in the future. This tax policy of the Chinese government offers insights in light of the economic hardships faced by our country’s middle class, the poor, and companies holding core technologies amid the Covid－19 pandemic, US－China hegemonic competition, and the resultant shifts in the global value chain. Although there are significant differences between our country and China in terms of political systems and market economy theories (or ideologies), China is implementing large－scale tax cuts focused on the middle class and the poor, while our country appears to lack adequate policy consideration for socially and economically vulnerable groups, such as the middle class, the poor, SMEs, and venture companies. This suggests that there is a need to consider these aspects when our country formulates and implements tax policies. In this study, based on a theoretical overview of the socalled ‘Chinese－style socialist market economy system’, the evolution of China’s socialist theoretical system was examined. Then, Xi Jinping’s ‘New Era Chinese－style socialist thought’ and his policy goal of ‘common prosperity’ were analyzed to review the main content and policy implications of the recent tax reforms in China and to forecast the future direction of China’s tax reform.
Keywords
- China
- Xi Jinping
- socialism
- tax cuts
- tax reform