The Chinese Academy of Social Sciences senior economist Yuan Gangming noted the negative impact SARS (severe acture respiratory syndrome) had on the majority of the country's industries.

But only a few industries, such as tourism and catering, received tax breaks to mitigate the impact of the outbreak.

"The limited tax favours, mainly applied to business taxes, are not enough to fuel economic recovery,'' he said.

Chinese companies bear too many tax burdens compared with foreign countries, Yuan said.

Liu Heng, a tax expert at the Central University of Finance and Economics, said tax cuts had become an international trend. "If China insists on not cutting taxes, it could have trouble attracting foreign investment,'' he said. He added a tax policy is an important indicator of a country's investment environment.

However, Zhang Peisen, a senior researcher with the Taxation Research Institute, said the country was unlikely to cut taxes further. "The country has already lost some revenue, as the country lowered tariffs and cut the business tax rate for financial institutions by 1 percentage point at the beginning of this year,'' he said.

The SARS outbreak would also lead to tax losses of 20 billion to 30 billion yuan (US$2.4 billion to US$3.6 billion) for the whole year.

On the other hand, the country needs more money to spend on investment, health and other public services.

Ni Hongri, a senior researcher at the Development Research Centre, said an overall tax cut would be of little help to the country's economic development, because China's tax system was still in its initial stage compared with Western countries.

The government still plays an important role in the current economic restructuring, Ni said. "China could not expect more investment from the private sector and individuals by merely cutting taxes,'' she said.

But in the long term, the government should consider "a structural adjustment'' to make the tax system more efficient, said Ni and Zhang.

The tax system's structural reform, which will reduce the tax burden on some industries while increasing taxes on others, will make the primary distribution more rational and effective, Zhang said.

Now that China is a member of the World Trade Organization, the country should end the enterprise income tax privileges enjoyed by foreign-funded companies.

China is now has a twin-track enterprise income tax policy for domestic and foreign-funded companies.

The income tax rate for domestic companies was 33 per cent, while that for foreign-funded companies was 17 per cent.

The country should also speed up shifting the value-added tax levy from the current production-based one to a consumption-based one.

The threshold for personal income tax, which stood at 800 yuan (US$96), should also be raised.

The government should also consider imposing an inheritance tax to help adjust income distribution. Enditem (China Daily)

(China Daily June 23, 2003)