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As to the current individual income tax, there are two measures of deduction: one is in quota deduction and the other is rate deduction. Income from wages and salaries shall be deducted 800 CNY as tax monthly, while the payment for writings, the remuneration for personal service and the likes shall be taxed in a combined way of quota deduction and rate deduction. It is not easy to calculate the final tax this way and may overlook the actual burden on the taxpayers. Now that the related reform in education, housing and social security is advancing step by step, the individual burden is different. So the current individual income tax has overlooked this difference of burden and fails to provide reasonable deduction for taxpayers according to their tax payment capability, the taxation principle of fairness will not be virtually carried out accordingly. On the other hand, 800 CNY as a monthly deducible amount is obviously too low in respect to the current general salary income. In fact, this number has been raised to 1000 CNY, 1400 CNY or even 1600 CNY. This expediential measure certainly infringe on the consistency and authoritativeness of income tax law.
4.The technique of collection and administration falls rather behind.
As to the tax collection, withholding and remitting tax and filing tax are the two ways. Due to the incompleteness in tax filing, tax auditing and inspection and tax withholding and remitting, the collection and administration can not live up to this expectation. First, the process of tax filing is not integrated. There are no practical and integrated tax filing rules available, nor individual property registering and inspecting system. Besides, there is too much cash transaction in the real practice as a result of the loose bank cash control system, all these contribute to the impossibility for the taxation authorities to inspect the individual income and property, quite many virtual taxpayers may easily avoid the obligation of paying tax. Second, the method of withholding and remitting tax is not practicable either. According to the applicable individual income tax law, the enterprises (units) or persons who are under obligation to withhold and remit tax shall fulfill such an obligation and make special notes for the future inspection before they pay the taxpayer the amount taxable. Actually, there are no systematic and feasible measures to assure such a fulfillment and pertinent tax laws become a dead letter.
II.Trends of China income tax laws reform
What shall we do to perfect China income tax laws in consideration of its drawbacks? The author believes that the formulation of a uniform enterprise income tax law and the perfection of individual income tax will be the trend to reform China income tax laws.
i）．Formulation of uniform enterprise income tax law
One of the key steps in establishing modern enterprise system is to transform the present enterprise system gradually into the one based on a perfect legal person system, characterized by limited liability, whose major form is corporation. Similarly, China''s enterprise income tax system shall step towards a uniform income tax on enterprise legal persons. The two laws, the Provisional Regulations for Enterprise Income Tax, specially applying to Chinese-invested enterprises now, and the Income Tax Law concerning FIEs and Foreign Enterprises, specially applying to Foreign-invested enterprises, should be regrouped into a uniform income tax law on enterprise legal persons.
1.To uniform the taxpayers by choosing a mode of uniform enterprise income tax law
The academic circle presents two main opinions on the modes of uniform enterprise income tax law. One is that China''s enterprise income tax system shall work on the concept of enterprise legal persons; the other is that the status of a taxpayer shall still be determined on whether it keeps separate accounts, i.e. to continue the present mode. Our opinion is that the uniform enterprise income tax law would be better to be named as Corporation Income Tax Law, which means the legal person enterprise defined by the civil law is a standard taxpayer. We may take advantage of this mode: the taxation problems involved with headquarters and branches, parent companies and subsidiaries will be resolved, the distinction between enterprise income tax law and individual income tax law will be more clarified since the former is aimed at legal persons while the latter is aimed at natural persons, and this mode is harmonious with international practice. At present a general mode of income tax law in the world is in this way; corporation income tax and individual income tax are the two standard segments by determining whether an enterprise is of a legal person.
2.To uniform the tax rate
As to the determination of tax rate, the academic circle presents two main opinions. One is that the present unified tax rate shall be continued for its merits of calculating simplicity, enforcement transparency and common fairness. Concerning the rate itself, the present figure of 33% is agreed on by some scholars, while some others go in for a smaller figure such as 30% or 27%. The other opinion is that the fixed tax rate should be flat rates combined with graded progressive rates. This latter design is obviously more scientific, yet it lacks enforcement transparency and may confuse the taxpayers. So a rather unanimous opinion in the academic circle is in favor of a unified tax rate. Considering the present tax rate in China, 25% on Chinese-invested enterprises and 24% on FIEs, and that in the neighboring countries, 37.5% in Japan, 30% in Thailand, 34% in South Korea, and 27% in Singapore, we may conclude herein that 25% is a proper figure.
3.To uniform the tax base
The present enterprise income tax has stipulated the way to calculate the taxable amount of income, that is to say, enterprises shall adjust the profit calculated in accordance with accounting system to be taxable amount of in accordance with tax law regulations. Yet generally speaking the determination of the tax base is rather closely dependent on the enterprise financial accounting system, which leads to the weak rigidity and low standardization in the calculation of taxable amount of income. So the uniform enterprise income tax law should provide the exact provisions on the subject and standard of the deduction from the taxable income. (i) salary. Salary shall be deducted in the amount of taxable salary at the present time by applying standard for FIEs in Chinese-invested enterprises; yet in the long run, after enterprises have perfected their self-restricting system, salary shall be deducted in the actual amount (ii) donation, which also shall be deducted, in accordance with certain rate and scale, by applying standard for FIEs in Chinese-invested enterprises. (iii) depreciation, standard for FIEs shall be preferred to have a shorter period of deprecation in accordance with the capability of the state revenue, in this way, enterprises may accelerate the replenishment of fixed assets and facilitate the technological advance. There are also many shortcomings in the determination of tax base which need to be rectified in the future unification of enterprises income tax laws.
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