Comparing the Australian Taxation System with the Taxation System in China - Case Study Example

READING HEADER: COMPARISON BETWEEN AUSTRALIAN AND CHINESE TAXATION SYSTEM Your institution: Your name: Course name: Course instructor: March 23, 2010 TAXATION IN CHINA Tax is the main source of fiscal revenue of China. It is also an important economic tool utilized by the government to support macro-economic regulation, which generates important effect on China’s economic and social development. After the tax system reform in 1994 and the constant revision of it in subsequent years, China has built up a tax system compatible with the socialist market economy, which has been playing an important function in guaranteeing China's fiscal revenue, widening the opening to the outside world and promoting the prolonged, fast and healthy development of China's national economy. Types of taxes Under the current tax system in China, there are 25 different types of taxes, which, according to their nature and function, can be divided into the following 8 categories: a) Turnover taxes. These include 3 kinds of taxes, namely, , Consumption Tax, Business Tax and Value - Added Tax. The levy of these taxes is usually based on the volume of turnover or sales of the taxpayers in the circulation, service or manufacturing sectors. b) Income taxes. These include Enterprise Income Tax (applicable to such domestic enterprises such as state-owned enterprises, private enterprises collectively-owned enterprises, joint operation enterprises and joint equity enterprises), Income Tax on Enterprises with Foreign Investment and Foreign Enterprises, and Individual Income Tax. These taxes are levied on the basis of the profits gained by dealers or producers dealers, or the income earned by individuals. c) Resource taxes. These include Resource Tax and Urban and Township Land Use Tax. These taxes are to the people engaged in natural resource exploitation or to the users of urban and township land. These taxes reproduce the chargeable utilization of state-owned natural resources, and aim to regulate the various gains derived by taxpayers who have access to the multiple available natural resources. d) Special purposes taxes. These taxes are and Construction Tax, City Maintenance Tax, Farmland Occupation Tax, Fixed Asset Investment Orientation Regulation Tax and Land Appreciation Tax. These taxes are charged only on certain particular commodities. e) Property taxes. These encompass House Property Tax, Urban real Estate Tax, and Inheritance Tax (not yet levied). f) Behavior taxes. These involve vessel and vehicle usage tax, tax on plate license and usage, tax on securities exchange, stamp duties, tax deeds, tax on banquet, Slaughter Tax among others. Hence these levies are charged on particular conduct behavior. In the People’s Republic of China, the State Organs having authority to formulate tax laws or tax policy mainly include: State Council, National People' s Congress and its Standing Committee, Ministry of Finance, State Administration of Taxation, Tariff and Classification Committee of the State Council, and General Administration of Customs. a) Tax laws are enacted by the National People's Congress, e.g., the Individual Income Tax Law of the People's Republic of China; or enacted by the Standing Committee of the National People's Congress, for example, the Tax Collection and Administration Law of the People's Republic of China. b) The administrative regulations and rules relating to taxation are made by the State Council, e.g., the Detailed Rules for the execution of the Tax Collection and Administration Law of the People's Republic of China, Provisional Regulations of the People's Republic of China on Value Added Tax, the Detailed Regulations for the Implementation of the Individual Income Tax Law of the People's Republic of China,. c) The departmental laws connected to taxation are devised by the Ministry of Finance, the State Administration of Taxation, the Tariff and Classification Committee of the State Council, and the General Administration of Customs, e.g., the Detailed Rules for the employment of the Provisional Regulations of the People's Republic of China on Value Added Tax, the Provisional Measures for Voluntary Reporting of the Individual Income Tax. The formulation of tax laws shall follow four stages: drafting, examination, voting circulation. The four stages for the formulation of tax administrative rules and regulations and are: planning, drafting, verification and circulation. The four steps cited above shall be effective in accordance with laws, regulations and rules. On the other hand, the laws of China specify that within the framework of the national tax laws and regulations, some local tax regulations and rules may be enacted by the People's Congress at provincial level and it’s Standing Committee, the People’s Congress of minority nationality autonomous prefectures and the People's Government at provincial level. TAXATION IN AUSTRALIA Income tax is the most important source of revenue for the government. Australia is one of the countries which charge highest tax Earth. Income tax is charge upon three sources of income for individual taxpayers: business income, personal earnings (such as salary and wages), and capital gains. Altogether, these three sources of income tax account for 57% of total revenue across the three tiers of government and 66% of federal government revenue. Income collected by individuals is taxed at progressive rates, while income obtained by companies is taxed at a flat rate of 30%. Generally, capital gains are only subject to tax at the time the gain is realized. Income tax is pulled together by the Australian Taxation Office on behalf of the Government of Australia. In Australia the financial years starts on July 1st and end on June 30th of the following year. Income tax is levied on the taxable income of the taxable entity. Taxable income is computed, in a wide sense, by applying allowable deductions against the income of a taxable entity. Forms of Australian taxes a) Income tax/Personal-This form of tax is progressive in nature. The current tax- free threshold is $ 6,000 and the highest marginal rate for individual is 45%. Also most people are supposed to pay Medicare levy at a standard rate of six percent of total income taxable. Normally, income tax is withheld from wages and salaries in Australia. Sometimes there casers of refunds to taxpayers. Other sources of personal income taxes include interest on bank deposits, dividends or any other source of income for the taxpayers. b) Company tax. This tax is charged at flat rate of 30% through a system called dividend imputation. Residents do not pay this tax upon the profits distributed to Australian-resident corporations. Upon paying corporate income tax franking credits are generated and can then be used in dividends payments at a maximum rate of 30 cents per dollar dividend paid to shareholders. Shareholders may then use the credits to balance their own personal tax payable, and claiming refund for extra credit left over. Capital Gains Tax c) Capital gain tax. This is part of the income tax system.net capital gains are normally incorporated in a taxpayer’s taxable income and taxed at low rates. Capital gains are payable by individuals, companies and any other entity which legalized to own assets. Trusts usually pass on their capital gains tax liability to their beneficiaries. Partners are taxed separately incase they own assets as a partnership business. d) Payroll tax. States government in Australia charge a payroll tax on the wages paid by employers. Typically the tax is applicable to all wages above a threshold. Group of companies may be taxed as a single entity where their activities and. The simplified table below shows the current payroll rates and thresholds for various Australian states. Current Payroll Tax Rates and Thresholds State Annual Threshold ($) Tax rate (%) New South Wales 638,000 5.75 Queensland 1,000,000 4.75 South Australia 600,000 4.95 Australian capital territory 1,200,000 6.85 Victoria 550,000 4.95 e) Family tax benefit-This is for families with dependent children. The tax system includes a supplementary arrangement of rules known as Family Tax Benefits (FTB) that are used in a more complicated way by different departments. The benefits and thresholds depend on the number of children and which of the married partners earn the additional income. This is divided into two parts: FTB- A and FTB- FTB –A. Each family receives payment for each child. FTB-B. Each family receives only one payment for the youngest child. Differences between Australian tax system and china taxation system 1. Australian Tax System is higher than the China Tax System. Compared to the rest the world Australia taxes are among the highest in the world. 2. China taxation system is broader than the Australia tax system. China has 25 types of taxes levied to the tax payer while Australia has less than twenty types of taxes. 3. In china various government organs are authorized to make tax regulation and rules for example, Ministry of Finance, National People' s Congress and its Standing Committee, State Council, Tariff and Classification Committee of the State Council, State Administration of Taxation, , and General Administration. In Australia the government makes tax laws and the taxation office implement the laws. Similarities of Australian tax system and china taxation system 1) Both Australia and China use regional representatives to collect taxes on behalf of the central governments. For example in Australia state governments levy payroll taxes and in China provincial administration enact some tax laws. 2) Income tax is the most important source of revenue for both countries. Personal income tax and company income tax are either increased or reduced to change consumption and savings level which will affect the interest rate and investment level hence producing the desired impact on the macro economy. 3) Both countries use taxation as an important tool for regulating economic activities to stimulate growth and development. References Fisher G., 1998, The Australian taxation system: notes for business tax planners, practical tax series, Longman Professional: ISBN0582939380, 9780582939387. Keating P., 1996, Reform of the Australian taxation system: statement by the Treasurer, Australian Government Publishing Service: ISBN0644044381, 9780644044387 Master Builder’s Federation of Australia, 2004, Review of Australian Taxation System, Master Builders' Federation of Australia. Edkins J., 2008. The Revenue and Taxation of the Chinese Empire, BiblioBazaar, LLC: ISBN0559259417, 9780559259418. Chen S. K., 2008, The System of Taxation in China in the Tsing Dynasty, 1644-1911, 3rd Ed., BiblioBazaar, LLC: ISBN0554681528, 9780554681528 Read More