China plans to start its tax reforms in this year. This reform concerns transforming of VAT type; improving excise; unifying corporate income tax; improving individual income tax system; reform of Urban Construction Tax, etc. Among them, the VAT reform, the corporate income tax unification and the cancellation of Agriculture Tax are the most focused. But until now, only the reform on agriculture tax is under the way. There has been little progress on other projects. It seems that this series of tax reforms are going to end with few achievements.

Then, what’s the problem with of tax revolution? Chief of State Administration of Taxation, Mr. Xie Xuren, has announced publicly that, ‘our tax reform is a gradual progress with the precondition of stable and fast revenue increasing’. This indicates, the tax reform is based on ‘stable’ and ’fast’ revenue increasing. The statement by Mr. Gao, a researcher of China Social Science Institute that, if the proposed tax reform is fully completed, tax revenue of our country will decrease by 300,000 billion further reveals the great resistance on tax reforms. That is, our government hasn’t well prepared for the high cost of the reform. How to ‘consume’ this big amount of revenue decrease to ensure that national finance won’t be heavily influenced? On the other hand, how to find new methods and resources to make up the budget shortage? There haven’t been solutions to these two questions. Although they are temporary difficulties which won’t change the general trend, it will do effect the time when the reforms are triggered.

To our believing, China is having a high tax burden rate in general. There is also structural defect on our tax system. These elements have greatly restrained further development of our national economy. They put our domestic enterprises in disadvantage when competing with foreign opponents. Furthermore, the heavy tax burden will inevitably lead to tax-preventing methods other than those introduced by law, such as tax stealing and tax evading.

For example, the current tax rule on salary income provides a general exception at RMB 800. But nowadays, the necessary expenditure for daily life has over exceeded this figure. Requiring part of people’s resources for survival is obviously violation of basis human rights. From the perspective of enterprises, only salary payment under RMB 800 can be categorized as enterprise cost and be deducted before corporate income tax. The exceeding part, although actually paid to the employees, will still be taxed as corporate income. The double taxation on same income is also violation of one of the basic tax principles. It unreasonably increases tax burden of enterprises. For this, it is broadly used to offset balance with traffic and communication vouchers in practice.

This example, on one hand indicates the need for reform on individual income tax and corporate income tax. On the other hand, it also shows the cost for tax reforms aren’t as high as calculated by researchers in their theoretic way. It can be predicted that once general exception for individual income tax has been increased, the taxable individual income tax and salary payment by enterprises will increase. This kind of growth isn’t real increase on employee’s salaries. Just the salary figure is released from their original disguised form. Certainly, the nation won’t suffer extra tax loss in this change.