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Reforms will shift tax focus to direct approach

Zheng Yangpeng
Updated: Jan 13,2015 8:07 AM     China Daily

Individuals may get a taxpayer identification number for the first time as China shifts its taxation system toward one based more on direct taxes, according to a draft version of the Tax Collection and Administration Law.

Some points in the draft, which has been released for public comment, also suggest that China will introduce taxes on small e-commerce businesses.

Both moves are part of the nation’s drive to modernize its government revenue system to give direct taxes such as personal and corporate income tax a larger role, analysts said.

The Politburo earlier set a goal to complete establishing a “modern fiscal and taxation system” before 2020.

According to the draft, individual taxpayers will get a permanent taxpayer identification number that they will have to provide when signing contracts, paying social insurance premiums or registering real estate.

Unlike most developed economies, which routinely issue such numbers to individuals, China issues TINs only to enterprises.

“This is a major step. An important goal of the amendment is shift to a direct tax-based system, with a focus on individual income tax and property tax,” said Liu Jianwen, head of the Fiscal and Economic Law Research Center at Peking University.

Liu said that the TIN would lay the technical foundation for the collection of personal income tax and property tax.

Economists have called for years establishing a system more focused on direct taxes, which they argue will do more to facilitate income redistribution. China now collects more than 60 percent of its tax from indirect levies including sales tax, value-added tax and consumption tax.

As these taxes are collected from enterprises, individuals lack the sense of being a “taxpayer” that their Western counterparts have. They also lack awareness of corresponding “taxpayer rights”, experts said.

“Ordinary Chinese will be dealing with tax authorities much more frequently. In the process, they will care more about how their money is spent and their rights as taxpayers are guaranteed,” said Liu.

The draft also stipulates that e-commerce companies must post their tax registration information on their Internet pages. E-commerce platforms are also required to submit operators’ information to the tax authorities.

Experts said these points indicated that small business owners on various e-commerce platforms would be subject to taxes.

A spokesman for Alibaba Group Holding Ltd said that at present, operators on its Tmall platform, which features established brands, pay taxes according to local regulations.

Meng Jing contributed to this story.

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