According to the 2007 "Forbes Tax Misery Index," China ranks third on tax burden in the world, only behind France and Belgium. Is China's tax burden really so large? In an interview over the weekend, with the overseas edition of the People's Daily, Shu Qiming, a senior official with the State Administration of Taxation (SAT), said that China's overall tax burden level still remains low. The ranking is relevant to entertainment expenses, but not scientific research.

China's overall tax burden at 18% last year

Generally speaking, whether or not including social security tax, China's total tax burden still remains at a relatively low level, if compared at the international level, said Shu. The tax burden, exclusive of social security funds, is significantly lower than that of most industrialized countries. Inclusive of the social security fund, the tax burden of China was 20% in 2005. For those industrialized countries which include the social security tax in their tax burden, their overall tax burden was nearly two times more than that of China for the same period. For developing countries which also calculate social security tax into their tax burden, their overall tax burden was also six to nine percentage points higher than that of China in 2005.

Statistics show that last year China's tax revenue, before deducting the export rebate, was 3763.6 billion Yuan; 677 billion Yuan higher, and an increase of 21.9% from the previous year. Accordingly, the overall tax burden in the country was 18% last year, a slight growth of 0.5% from 2005. However, it was still 3 percentage points lower than that of other developing countries and about 12 percentage points lower than developed countries.

Different tax systems not comparable

It does not require scientific measurements to sum up different tax rates. Moreover, the level of tax rates is not directly related to the social welfare satisfaction rate. Tax experts pointed out that the "Forbes" ranking is not based on an internationally recognized system of objective indicators. Even though a country has a heavy tax burden, it does not mean that the taxpayers of this country are suffering. It is the quality of the social welfare system that directly determines the level of satisfaction of taxpayers. For example, people of Nordic countries, although facing a heavy tax burden that usually exceeds 50% per taxpayer, still have higher satisfaction rates because they enjoy free medical care and excellent social security benefits.

Liu Huan, associate dean of the Finance and Public Management Department at the Central University of Finance and Economics, believes that there is a lack of comparability of the tax systems of different countries. China's current consumption tax system is not the same as those of European countries and the United States. "We levy a special consumption tax; while the United States and European countries have a general consumption tax. The categories of taxes are also different. For example, China does not have a wealth tax but has a value-added tax. This has greatly reduced the ability to compare tax systems."

Liu Shangxi, deputy director of the Financial Science Research Institution under the Ministry of Finance, said that "from the perspective of the proportion of taxation in the GDP, China's macro tax burden is still at lower range among developing countries."

Forbes Tax Misery Index ranking "inaccurate"

Experts believe that the Forbes Tax Misery Index ranking lacks scientific basis. There are three main arguments:

First, it uses the maximum statutory tax rate as a standard for its tax index calculation. For example, the maximum marginal tax rate of China's individual income tax is 45%. However, this only applies to those who earn 100,000 Yuan each month. According to statistics, the tax revenue collected from people who pay tax at the rates of 25% and 30%, only accounts for 6% of the tax revenue under this category, and only 0.5% the total tax revenue. The proportion is even less for those who pay tax at the rate of 45%.

Secondly, the Forbes ranking does not take into account the proportion of the tax base and the tax structure. Instead, it simply sums up the different types of tax rates. By adding China's statutory tax rate for and individual income, which accounts for 7% of China's gross tax revenue, to the statutory value-added tax rate, which accounts for nearly half of the country's gross tax revenue; the result would be not be very reliable.

Finally, the Forbes ranking does not take into consideration the tax waiver policy and tax administration factors. China has relatively more tax reduction policy provisions that cover a wider range and larger amount in comparison with other countries. In theory, these policies may, to a certain extent, reduce the tax burden. By using a rough estimate, China's tax relief policies and regulations could theoretically reduce the tax burden by approximately 10%.

Editor: Yan