Chinese economists urge tax reductions

Chinese economists are calling for the government to cut taxes for enterprises and reduce their lending costs, deepening supply-side structural reforms.

Hundreds of billions of yuan of taxes could be saved in targeted areas next year through various favorable tax policies, experts have predicted.

China has been adjusting its tax policies to encourage small businesses and the service sector. Value-added tax reforms, begun in 2012 to eliminate double taxation for service businesses, have saved firms in sectors including transportation and telecoms 480 billion yuan (75.16 billion U.S. dollars). Favorable policies also cut the tax bill of small businesses by 48.6 billion yuan in the first half of this year.

"Those are still relatively small numbers if you consider the 20-trillion-yuan fiscal revenue," said Teng Tai, head of Winbro Economic Research Institute.

China's tax-to-GDP ratio, a country's tax revenue as a percentage of its gross domestic product, reached 37 percent in 2014, almost 10 percent more than the average for developing countries.

With the ratio so high, the government should cut income tax for both corporations and individuals to encourage investment and consumption, Teng said.

While reducing corporate taxes may benefit profitable companies, the policy will have a limited impact on struggling ones, which care more about cash flow, said Liu Shangxi, head of the research institute for fiscal science under the Ministry of Finance.

Tax reduction should therefore still be mainly achieved by value-added tax reform, said Liu.