China's problem of excessive taxation

China's problem of excessive taxation


I know that I’m coming to the party at least a year – and therefore not at all fashionably – late, but nevertheless I’ve just been reading Will The Boat Sink The Water and it surprised me.

To be more specific, while I was obviously aware that there is considerable unrest and unhappiness in rural areas of China, I was less clear on the causes. I assumed it was a result of expropriation of land, legal injustices and corrupt or criminal cadres, but the authors make perfectly clear the primary cause: excessive taxation.

(Some say that since the Agricultural Tax was abolished last year this makes the issue of taxation outdated, but I don’t believe this to be true. That tax was just one of many – and as such its abolishment was merely a gesture, and as much political as financial)

The reason the tales of excessive taxation struck a chord is that I’d been thinking about exactly the same thing just before reading the book, but in terms of causes of unhappiness for urban Chinese.

The book paints a bleak picture of the administrative farce in the countryside – the dysfunction of the many levels of government would have all the makings of a comedy if it weren’t so deadly.

But it is the description of the multitude of taxes that is most damning. My personal favourite is the pig tax:

“If you are so enterprising as to keep a pig, you will need to pay the 'live pig' tax, the pig killing tax, the “capital gain” tax, the income tax, and the tax toward the maintenance of the township. In some places, you are taxed for keeping a pig whether you keep one of not.”

It’s easy to talk human rights, politics and justice, but I find it beneficial to repeatedly remind myself of the vast importance of money in China.

You give money and not gifts to people on special occasions. If you want to keep ghosts away you burn money to pay them off.

In the UK money is almost something to be ashamed of – if you are rich that either means you were born with a silver spoon up your a*se or you are nouveau-riche and therefore lacking any class. But in China money is everything: Whenever I listen to ordinary Chinese talk it is invariably about either the price of something, or food.

Obviously there are many Chinese who care about politics and law, but I think it is fair to say that the vast majority care about money more. And that’s why so many people are ostensibly so content in China despite it’s myriad of idiosyncrasies: they see their economy very visibly growing, and they know this will mean that they will get richer.

This is why the issue of taxation is such an important one, not just for the harshly-treated peasants of Anhui, but also for the urban elite.

The current income tax rates in Beijing are as follows:

(Monthly taxable income, part in excess - rate - quick deduction RMB)

500 yuan or less - 5% - 0

500 to 2,000 yuan - 10% - 25
2,000 to 5,000 yuan - 15% - 125
5,000 to 20,000 yuan - 20% - 375
20,000 to 40,000 yuan - 25% - 1375
40,000 to 60,000 yuan - 30% - 3375
60,000 to 80,000 yuan - 35% - 6375
80,000 to 100,000 yuan - 40% 10375
100,000 yuan - 45% 15375


The average monthly income in the municipality in 2006 was 1,822 yuan, meaning 10% income tax minus 25 kuai – which doesn’t sound too bad.

The problem, however, is that income tax is potentially just the beginning. Beijingers could also be eligible for the following:

Business Tax Land Appreciation Tax, Urban and Rural Land Usage Tax, Metropolitan Maintenance and Construction Tax, Property Tax, Urban Real Estate Tax, Vehicle and Vessel Usage Tax, Vehicle Usage License Plate Tax, Slaughter Tax, Resource Tax, Fixed Assets Investment Orientation Regulation Tax, Stamp Tax, Agriculture Tax, Agricultural Specialty Tax, Deed Tax, Arable Land Use Tax, Banquet Tax, Operating Fee of City Collective Service, Cultural Undertaking Construction Fee, Educational Fee Supplement, Incomes from Overdue Fine, Postponed Payment and Land Usage Fee Paid by Enterprises with Foreign Investment.

My personal favourite is banquet tax: Is that a tax to pay for banquets, or is the cost of banquets taxed?

Not mentioned in this list are national taxes: for example, VAT is 17% and capital gains is 20%.

All in all, there seems to be a lot of tax, particularly when you think what you get in return.

In the UK, while tax rates are high, I know that in exchange for my hard work at a minimum I can get free healthcare and education. In China, healthcare notoriously costs a fortune, and education is far from free: in addition to the Educational Fee Supplement listed above, you also have to pay fees for school books, uniform, tuition and buildings amongst other things.

The CPC is trying to make rural primary school education free, but there is no such move in urban areas. Despite 20% year-on-year tax revenue increases, government spending on education remains stuck below the accepted global standard of 4.4% of GDP. State media repeatedly claim it is rising to reach a 4% target in 2010, but this appears to be inaccurate: this time last year the education minister Zhou Ji admitted that education spending was still stuck at 2.79%.

Last year tax revenues were $381 billion, and if education is any yardstick, it’s hard not to question where it all goes. Take airports for example: China is on an almighty airport building boom, a mega strategic infrastructure upgrade that you think would be paid for straight out of State coffers. But no: every time you buy a ticket you pay a 30 yuan “airport construction fee”, which is now factored into the cost of the ticket. Obviously the construction boom is funded by a combination of the fee and tax dollars, but it’s another example of how nothing comes free.

So what exactly does the Chinese government spend its $381 billion on each year?

The answer, beyond things such as the PLA and the increasingly-curious space programme, appears to be a simple one: itself.

As noted in Will The Boat Sink The Water, and I’d read it before elsewhere, the government ratio in China is now 1 official to 40 people – quite an increase from the golden Tang dynasty, when the ratio was 1 to 2,927. This is obviously a major burden, as the authors note:

“These people don’t produce one cent of value or profit, but they must be paid their salaries and their bonuses, they must eat well and live well. In addition, office buildings must be put up, dorms must be provided, as well as sedans and telephones and cell phones.”

It’s easy to think these are all paper-shuffling tea-drinkers, but this is not the case. Annoyingly I can’t find an online source, but I’ve read that during the Jiang Zemin era one in three government employees was involved in security. Obviously a part of this was to absorb cuts in the PLA (which seems like the bureaucratic equivalent of moving a polluting factory to another place instead of cleaning it up), but nevertheless, the figure is very high and therefore offers some clues as to where his priorities lay.

So what exactly is my point?

The weight of the taxation must pain ordinary Chinese, especially those in the countryside. In addition, while there is limited transparency concerning how it is officially collected and spent, these people can in fact see their hard-earned money at work paying for the huge army of officials to lord it over them.

Political knowledge has been kept low so very few Chinese will be thinking in terms of tax dollars earning political representation in addition to public services, but you don’t have to be George Washington to recognize injustice.

In the UK during the time of Henry VII (1485-1509), the tax collection system became known as “Morgan’s Fork” after a particularly zealous official. Morgan and his team would go from house to house, and if he saw valuable items he would take them as tax. However, if he didn’t see anything nice he would assume that all the valuables were being hidden, and use this as a pretext to a rip a house apart in search of anything he could take.

With their pig taxes, marriage taxes, cooking taxes and “attitude” taxes, China’s officials are no less ruthless than Morgan. But while Henry VII revived a failed economy and achieved political stability through his tough approach, the Chinese government appears to be hell-bent on squandering their tax revenues on needless bureaucratic layers and a wastefully-large security force.

Looking at potential troubles down the line for the CPC, flashpoints that could create popular discontent should the economy significantly slow or dangerously overheat, I would put tax ahead of political repression and legal injustice.

It is a frustration that everybody can feel.