Comparative Overview of Chinese and Australian Tax System - Essay Example

Comparative Overview of Chinese and Australian Tax System Taxation in Australia has evolved since the year 1918 as the first tax on the imports of wine beer etc. It can easily be said that the Australian taxation system is an evolution of excellent imperative designs, where as in spite of being one of the oldest civilizations in the world Chinese taxation system only evolved from the year 1950 after formation of People’s Republic of China, Tran- Nam, (2002). The Chinese system of taxation is based on the two main considerations 1. Transition to a socialistic market economy 2. International market economy and the role of China in it. The Chinese tax system is very nascent and so evolution and reforms are still an ongoing process, Tran- Nam, (2002). Tax system in Australia developed through various phases and can be demarcated as Pre federation before 1901 where state taxes like customs duties, excise duties, income tax, land tax etc are introduced. Early federation from 1901 to 1941; Federal taxes were implemented like land taxes, excise, estate duty, sales tax etc and a parity and synchronization between State and Commonwealth taxes were introduced. New Federalism era (1942 – 1979) here the apportionment of taxes between federal and states were carried out, the Federal government brought under its ambit income tax and land and payroll taxes were transferred to the states. Estate tax, gift duties, death duties were abolished. 1980 -1999 Major tax reforms took place during this time it included tax base broadening, income tax rates were cut down, self assessment was introduced and the tax law was much simplified, Tran- Nam, (2002). Year 2000 onwards an era of replacement of Wholesale sale tax by GST was introduced along with other reforms like introduction of Australian business number, business activity statement, pay as you go changes in CGT, reforms in business taxation etc. On the other hand Chinese taxation era can be classified into four periods like: 1949- 57 Taxation policies were unified and modern tax system introduced, like legislative power for taxation, tax types, collection methods rates etc were unified. Year 1958- 1978 Simplification of Taxes 1979- 1993 Initial phase of reforms took place where in business tax system were introduced and profit taxing mechanism brought in place 1994 saw the era of major reform where new tax system was introduced it included VAT, individual income tax, enterprise income tax etc. Zeng (2000). In case of China it is to be noted that only the central government has the constitutional authority to impose tax, local governments cannot impose any major tax through legislation except for minor local taxes. In Australia the scope is entirely opposite as it being a federation so both Federal and State governments can pass laws to implement taxes the Federal Government does so on the basis of Section 51(ii) of Commonwealth Constitution other important provisions on tax are mentioned in Sections, 53, 55, 88, 90, 92, 96 etc. States also have concurrent power to legislate except retrained under Section 90 and 109 which grants the Federal Government exclusive rights, Tran- Nam, (2002). In Australia there are three main sources of law these are statutory law which are brought by legislatures in the Parliament, the second is case law which are created by any major decision of the Courts, there is this third source of informal law which is created by the ATO, it is developed as the Commissioner of Tax implements the law assuming that the taxpayers abide by the rulings of ATO and also their procedures etc, Tran- Nam, (2002). In China the system is completely different, most of the tax laws are enacted by NPC, then the State Councils formulate the administrative rules and regulations, finally departmental rules and regulations are issued by MOF and SAT, these can be regarded as tax legislation formally. These acts are weighed according to their imposed authority and impose various degree of authority, Tran- Nam, (2002). In the second circumstance SAT is the authority that is responsible for drafting tax rules and regulations along with implementation. Lastly the courts of China do not exercise the same power or authority as Australian courts in regards to interpretation of statutes relating to tax laws. Though one thing is strikingly common between the two countries i.e. the process of drafting, examining, promulgating etc. of statutes, Tran- Nam, (2002). Another aspect of tax is the informal aspect which is fundamentally different from Australia to China and which will be discussed now. In China the government departments at different level have power to levy tax according to practice but not in accordance to law. These informal taxes are called governmental charges. These charges account for almost 14.3% of China’s GDP exceeding formal tax revenue, Yang (2000: 2). In Australia on the other hand taxes constitute 81% of total revenue and informal revenue forms negligible part. Tax policies are designed by the politicians forming the government and the advisors who form the tax policy division of the treasury in both the federal and state level. If there needs to be a substantial amount of tax reform then there is an initiation by the politicians in consultation with advisors in treasury, in case of amendments the motion begins from the treasury and sometimes it is so complicated that it is difficult to demarcate who has initiated the action or its point of origin. ATO can contribute in tax reform process but with limited role as its activity is more prominent as tax collector. In case of Australia the tax reforms involve inputs from private sector, involving tax practitioners, tax academics, business captains and general public, Tran- Nam, (2002). In China the process of tax imposition or design and reform are almost the same the difference being that STA plays a more significant role than ATO in Australia, although Chinese government consults academicians, consultants etc but it is not as wide as in Australia also, once the experts advice is taken into account then it can be implemented immediately as general public is not involved in it, Tran- Nam, (2002). The objectives of tax reforms in China were to stabilize the economy, revenue increase, give access to foreign investment, simplify tax laws, standardize revenue collection at all levels etc. Zhou (2002:625-6) these are quite common with the Australian policy specially the active role of China to transform into a market economy with stress on foreign investment. In Australia the Federal government is primarily responsible for tax collection whereas the states governments influence the allocation of resources, however both these countries have different priorities as per their requirement. Equity is valued as per capacity to pay in Australia whereas in China it is the principal of beneficiary that Equity evolves, Tran- Nam, (2002). Both China and Australia does not have any social security number but China rely heavily on the indirect tax revenue. The tax revenue from direct taxes is at 16% in China while it is 54 to 56 % in Australia but it is important to note that the tax revenue will converge as income base broadens in China and both countries will eventually be equal in this aspect, Tran- Nam, (2002). Tax revenue sharing in China involves central tax revenue, shared tax revenue, local tax revenue, in Australia state governments’ depends heavily on the grants derived from the federal government for the revenue requirement. After entry into the WTO regime there was direct pressure on China to reduce subsidy in the form of tax concessions to promote exports, as this is prohibited, so domestic enterprises cannot receive favorable tax treatment under WTO principals. Foreign countries are least bothered about preferential treatment unless foreign companies are treated equally, Tran- Nam, (2002). Tax administration in Australia at federal level is done by ATO which is a statutory body established under Taxation Administration Act 1953, while in case of State the tax is collected by the Office of Revenue in the respective state. Though ATO is supposed to be independent but still it is under considerable influence from Federal treasury as they provide the budget for its functioning, Tran- Nam, (2002). In China SAT is the highest tax authority and is under the influence of State Council. The Commissioner enjoys the same rank as the minister and has three deputies under him, just like internal assurance branch of Australia there is supervision bureau in China which acts as a supervisor and checks fraud, and conducts audit. In China there is central as well as local revenue sharing system so SAT office have jurisdiction in local, provincial and county levels also, Tran- Nam, (2002). Tax dispute settlement in both the countries follows same hierarchy. In Australia any dispute is first resolved by ATO officers then may be undertaken by Administrative Appeals Tribunal or Federal Court or High Court. In Chinese system the taxpayer must pay the taxes and then they can move to the Administrative Review Office, after that to the Peoples Court. The important differences are that in China the scope of judicial review is very limited while in second case in Australia there is a scope for taxpayers to win against ATO, while in China it is very rare only in cases of procedural defects Tran- Nam, (2002). Australia’s income tax are same for personal and business income, in China these are different. Australia relies on labor services as the production tax while in China taxes are on land and assets created by human beings, Tran- Nam, (2002). References Tran- Nam, B (2002). The Chinese and Australian Tax system A comparative overview ATAX UNSW NSW 2052 Australia Yang, B (2000), The analysis of difficulties and the choice of solutions for the further reform of VAT in China, mimeo. Zeng, G (2000) “An analysis of Chinese taxation system and its future development” Atax discussion paper series no 2 Sydney ATAX. Zhou, Z (2002), “The current tax system and priorities for reform” in C. Pigott (ed) China in the world economy, Paris OECD Chapter 18, 624-44. Read More