The time to reform China's tax system is now, says a tax expert.

"China's economy is in a stable development period and the country's consumer prices are at a lower level, this situation is favorable for the reform," said Zhang Peisen, a senior researcher with the Taxation Research Institute under the State Administration of Taxation.

The Chinese economy will continue to grow at a rate of more than 8 per cent in the next few years while growth of consumer prices will be less than 5 per cent up to 2008, he said.

"The steady increase of tax revenue since 2000 has also lain a solid foundation for the reform," Zhang said.

The country's tax revenue, which has grown from 250 billion yuan to 300 billion yuan (US$30.1billion-36.1 billion) a year since 2000, will continue to grow at a rapid pace in the coming years, he said.

Tax revenue for 2003 is likely to grow 17.5 per cent to 2 trillion yuan (US$241 billion), he said. "By the end of 2005, tax revenue is expected to reach 2.64 trillion yuan (US$318 billion)."

Ni Hongri, a senior researcher with the State Council's Development Research Center, said establishment of a highly efficient tax system which tallies with the country's actual situation is the ultimate goal of China's tax system reform.

"The country is expected to take concrete steps to improve the existing tax system next year," Ni said.

According to Zhang, revisions to business income tax and personal income tax will be considered by the legislators next year.

"The revisions are the first steps to reform the income tax system," he said.

Since China became a member of the World Trade Organization in December, 2001, the country should at first unify business income tax policies, Zhang said.

The country now has a two-tier tax policy for domestic and foreign-funded companies.

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

"The country should implement the national treatment for domestic and foreign-funded companies, because they should compete on an equal footing," he said.

In recent years, personal income tax has become a hot topic, because the threshold for taxation, which stands at 800 yuan (US$96), was considered low and some rich people managed to evade taxes.

The present personal income tax rates vary in 11 categories based on income sources - and this system does not have much control over an individual's total annual income.

The system has many loopholes which tax evaders exploit.

The most common is for business owners to show personal spending as company expenditure.

Some even include their personal incomes in business turnover to evade personal income taxes, which are usually higher than corporate taxes.

Taxation is aimed at people with high incomes to promote economic development and social stability.

As a result, the current 800-yuan (US$96) starting point for taxation on monthly income needs to be raised.

Personal income taxes should also be based on a combination of various means of incomes, including bonuses and dividends, instead of merely salaries like they are now.

Meanwhile, the personal circumstances of an individual, such as supporting children and the elderly, may be considered before the tax is computed.

The government should also consider an inheritance tax to adjust the income distribution.

(China Daily December 15, 2003)