Feng Xingyuan: Promoting enterprises to reduce costs and increase efficiency with tax reform

Text / Sina Finance Opinion Leaders Column (WeChat public kopleader) columnist Feng Xingyuan

In order to boost the competitiveness of China's manufacturing industry and respond to the US's gradual low tax model, the best strategy is to reduce the overall cost of the company with a low tax model.

Promote enterprises to reduce costs and increase efficiency with tax reform

The Central Economic Work Conference held at the end of last year emphasized that in 2017, the main line of supply-side structural reforms should be promoted, and efforts should be made to reduce taxes, reduce fees, and reduce factor costs. It is necessary to reduce various transaction costs, especially institutional transaction costs, reduce the approval process, reduce the cost of various intermediary evaluations, reduce the energy cost and logistics costs of enterprises, increase the flexibility of the labor market, and promote the cost reduction and efficiency of enterprises.

Indeed, the call for heavy tax burdens on private enterprises has recently risen sharply, and the central tax cuts and fee reduction policy will be a timely rain.

According to a survey of private enterprises, there should be an increase in the tax burden after several industries have changed. Among the companies surveyed, 57 companies have experienced the “reform of the camp”, with 36 (63.2%) reflecting an increase in tax burden, 12 (21.1%) and 9 (15.8%) unchanged. There are a total of 14 real estate industries here. 13 companies believe that the “reform of the camp” has led to an increase in tax burden, accounting for 92.6% of the number of companies surveyed in the industry. Only one company believes that the tax burden has not changed, and no company believes that the tax burden is reduced. .

In addition, the tax burden of each of the nine pharmaceutical industries and agricultural product processing industries surveyed increased. This shows that the real estate industry, the pharmaceutical industry and the agricultural product processing industry are more difficult to achieve the original intention of "reform and increase" tax burden in all industries.

Among the 113 companies surveyed, the proportion of the tax burden of the company is considered to be heavy and heavier, accounting for 87%, and the tax burden is considered to be 8%, which is considered to be lighter and lighter, accounting for only 1%. This kind of subjective perception is a real feeling of private entrepreneurs.

Others believe that the above subjective survey results are not too hard and should produce objective data. The objective data given by PricewaterhouseCoopers and the World Bank's latest report, Paying Taxes 2017 (2017 tax report), show that Chinese companies account for 68% of their net profit. The United States is only 44%.

Prof. Zhou Tianyong from the International Strategy Institute of the Central Party School presented a set of data showing that the 2013 research report of the Boston Consulting Group pointed out that the average cost of manufacturing goods in the United States is only 5% higher than that in China; by 2015, the production in the low-cost regions of the United States is expected to change. It is as economical as producing in China; by 2018, the cost of manufacturing in the United States is expected to be 2% to 3% cheaper than China.

Cao Dewang, chairman of Fuyao Group, said in an interview with the "First Financial" reporter that he plans to spend $1 billion to build a factory in the United States and produce auto glass there. In other words, he is prepared to follow up on the “re-manufacturing” of the United States. The reason is that compared to mainland China, the production of automotive glass in the United States has a significant cost advantage. He said that the comprehensive tax rate of China's manufacturing industry is 35% higher than that of the United States. The cost of producing laminated glass in the United States is more than four times higher than that of China, but the total profit will still be 10% more.

I believe that in order to maintain China's status as a world manufacturing center, it is necessary to reduce the tax burden of enterprises as soon as possible and solve various problems related to the tax system.

From the perspective of macro tax burden, combined with other data, we can see that the tax burden of Chinese private enterprises is relatively heavy. Let us first look at China's macro tax burden. The macro tax burden refers to the proportion of the government's total tax revenue to GDP in an economy.

In 2015, China’s GDP reached 676.708 billion yuan. In that year, the general public budget income was 1,521.7 billion yuan, the social insurance fund income was 430.88 billion yuan, the government fund budget revenue was 423.3 billion yuan, and the state-owned capital operating budget income was 256 billion yuan. At the same time, state-owned enterprises realized a profit of 2302.8 billion yuan.

The government fund's budget revenue here includes 3.25 trillion yuan of state-owned land transfer income. Some of the profits realized by state-owned enterprises were turned over to the finances, that is, the state-owned capital management budget revenue, the latter accounting for 11.1% of the former.

A normal macro tax burden should be included in general public budget income, social insurance fund income, government fund budget income, and state-owned enterprise profits. The profits of state-owned enterprises are originally owned by the state-owned enterprises, that is, the government finances, that is, the fiscal revenue. As for the government to leave 89% of the profits of state-owned enterprises to state-owned enterprises, it is equivalent to the government's expenditure on fiscal revenue, and transfer this part of the fiscal revenue to state-owned enterprises.

When calculating such a normal macro tax burden (caliber 1), it is the sum of general public budget income, social insurance fund income, government fund budget revenue, and state-owned enterprise profits divided by GDP. From this, the macro tax burden (caliber 1) of China's normal caliber in 2015 was 38.5%.

However, many local government departments have “three chaos” income (indiscriminate fundraising, arbitrary charges, and apportionment). As China's economic growth slows down, the problem of this "three chaos" rises exists.

The more the local government's fiscal revenue is tight, the more serious the "three chaos" problem will become. There is every reason to conservatively estimate that the local government’s “three chaos” has a GDP of 1.5%, and the wide-caliber macro tax burden (caliber 2) will increase by 1.5 percentage points. Through the "three chaos", the local government actually continues to draw a large amount of funds from GDP or occupy other resources, which is equivalent to continuing to collect taxes. Thus, the 2015 wide-caliber macro tax burden (caliber 2) is the ratio of caliber 1 macro tax burden plus “three chaos” income to GDP, at least 40%.

This "three chaos" calculation is a conservative small-caliber estimation. It does not take into account that local governments pay low land compensation rates and do not pay land acquisition fees according to market price standards. In fact, local governments have obtained a large amount of invisible income related to land acquisition, which can be conservative. Estimated by 2% of GDP. In addition, we will get a wider tax macro tax (caliber 3) 42%.

China's inflation rate in 2015 (measured by the consumer price index) was 1.4%. Inflation is equal to taxation, so it is also called "inflation tax." According to Buchanan, the Nobel laureate in economics, the government should maintain a stable currency. If the monetary authorities create inflation through the use of money, then the government should refund the tax to the social members to the same extent according to the inflation rate. .

Therefore, China's macro tax burden (caliber 4), which is calculated to be wider than the above, requires further consideration of the inflation rate. The calculation method is to get the caliber 3 + inflation rate, which is 43.4%.

In fact, due to the current smog problem, or to meet large-scale activities, the relevant places shut down factories, construction sites or markets, or restricted the opening of business. For enterprises, the loss they suffer is at least a kind of “tax and fee”. This “tax” can be calculated at least 1% of GDP. In this way, a wide-caliber macro tax burden (caliber 5) is obtained, which is equal to the caliber 4+ stoppage loss rate, which is 44.4%.

The above-mentioned caliber has not considered the problem of the high GDP denominator in the calculation formula of the macro tax burden caused by the GDP growth caused by the high GDP growth rate. Nor did it consider China’s 2015 general budget deficit of 2,355.1 billion yuan (that is, the deficit rate reached 3.48%), and did not take into account the net increase in other government liabilities. Therefore, we have not calculated the macro tax burden of caliber 6, caliber 7 and caliber 8.

Due to the indirect taxation in China, most of the tax burdens in the macro tax burden are borne by enterprises. However, the vast majority of private enterprises are struggling in the competitive industry, struggling in the fiercely competitive “Red Sea”. The demand for their products is highly flexible, and it is difficult for private enterprises to transfer tax burdens. At present, some scholars believe that the tax burden of private enterprises is an indirect tax, and it is easy to pass on the tax burden. This view is undoubtedly wrong.

It is worth noting that for a normal business, it may be able to withstand a certain level of tax burden, but with the issue of social security rates, financing issues, debt problems and the impact of the economic cycle, and even harassment by local government departments, etc. It will make private enterprises unsustainable.

From this point of view, the private enterprise tax burden is not only an absolute concept that reflects its absolute tax amount, but also a relative concept that reflects the proportion of tax in turnover, net assets or net profit. It is also a comprehensive consideration. The relative concept of other corporate costs.

At present, many private enterprises are also burdened by taxes and fees, social security rates, financing difficulties, debt burdens, economic cycle issues, and local government harassment. The reduction of these aspects or the improvement of the situation can play a positive energy role for the survival and development of private enterprises.

In fact, a large number of private enterprises rely on private high-interest loans to survive. If it is a short-term loan, it can support it. The accumulated amount is large, and the borrowing time is long. The interest rate will overwhelm the private enterprise.

Going back to our tax burden theme, if tax cuts are implemented from the perspective of tax reform (not just a temporary policy) or the low tax model is fully implemented during the economic downturn, this will not only reduce the actual cost pressure for private enterprises, but also It will help boost the confidence of private enterprises and the vitality of private enterprises. From the perspective of tax reform, it is an important supply-side reform for the tax reduction of private enterprises or the full implementation of the low-tax model. It is a plan that current policy makers need to consider.

More importantly, the low tax model is superior to the tax reduction policy. The low tax model gives private enterprises more stable and longer-term expectations, and it can promote the investment and innovation enthusiasm of private enterprises.

It is said that US President-elect Trump wants to reduce the US corporate income tax rate to 15%. Moreover, the United States does not levy business tax or value-added tax on enterprises. Trump intends to revive the US manufacturing industry and achieve the "re-manufacturing" of the United States. It is very likely that the income tax of domestic companies in the United States will be reduced first, while the income tax will be maintained for overseas companies.

If the United States turns to such a low-tax model, the demonstration and leading role for the world is immeasurable. In order to boost its own manufacturing industry, or to cope with the US's gradual low tax model, the best possible response is the low tax model.

(The author of this article: Researcher at the Institute of Rural Development, Chinese Academy of Social Sciences.)