China will reform its fiscal and taxation systems, officials announced over the weekend.

The fiscal reforms, revealed at a finance forum in Beijing, will firmly support the development of social undertakings, strengthen direct subsidies to farmers and back the go-west programme and old industrial bases in Northeast China. They will also help solve the problem of export rebates in arrears, and increase input into environmental protection, CCTV news said, quoting sources from the Ministry of Finance.

The reforms include improving the personal income tax regime, switching from production-based value-added tax to consumption-based value-added tax, amalgamating enterprise income tax and adjusting consumption tax.

Improving the personal income tax system is regarded as a key area of reform, as it still falls short of the role it is expected to play in narrowing the gap between the rich and poor.

Transforming the value-added tax is also necessary for economic restructuring.

Under the current system of production-based value-added tax, fixed assets are classified as consumer goods and are subject to value-added tax. This increases the tax burden on capital- and technology-intensive enterprises that cannot claim tax deductions for the purchase of fixed assets.

The reform will unify the criteria on who is liable to pay the tax and how the pre-tax cost and other details will be calculated, to standardize income tax for domestic and foreign enterprises.

The reform will also remove consumption taxes on commodities that have become mass consumer goods. A consumption tax will be imposed on new luxury goods instead.

(China Daily November 17, 2003)