Image credit: @itspaulkelly.
Sweeping reforms to China’s tax system will make state owned enterprises (SOEs), property speculators, foreign investors, and the rich pay more to alleviate the country’s yawning wealth gap.
Chief among the reforms, announced by the State Council on Tuesday, is a plan to raise the percentage of profits contributed by SOEs to the government by around five percent by 2015. SOEs are seen by many reformers as bloated sacred cows, protected by the government from the vicissitudes of the market while refusing to contribute their fair share.
“For state-owned companies in some industries with overly high income, we will strictly implement the two-tier controls on firms’ total salary and wage level to gradually reduce the salary gap between different industries,” said the announcement.
The impetus behind the reforms is an ongoing desire to move economic growth away from reliance on investment and towards consumption. Citizens will be able to earn more money from assets, including higher returns from dividends and bonuses.
In a nod to serious (and seriously needed) hukou reform, rural migrants will get the opportunity to transfer their official residency to cities, where wages and social services are better.
Foreigners living and working in China will also be expected to contribute as the country attempts to build a social safety net for its 1.3 billion people. The current tax exemptions for foreigners who obtain dividends and bonuses from foreign-invested enterprises will be cancelled, according to a report in Caixin.
China’s National Bureau of Statistics this month released an updated estimate of the country’s Gini co-efficient, a measure of income disparity. China’s Gini index is estimated at 0.474, far above the 0.40 level considered a “trigger for social discontent”.