Tax rates blamed for high living costs

A heavy tax burden is one of the reasons behind the high cost of living in China, some experts said while looking into why the prices of some goods are higher in China than in the US.

An eye-catching message is currently making rounds among microblogs in China. “In China, a worker earns 5,000 yuan ($773.5) a month and needs to pay 30 yuan for a meal at KFC, 100 yuan for a meal at a restaurant and 400 yuan for a pair of Levi’s jeans. In the US, a worker earns $5,000 a month, spends $4 for a meal at KFC, $40 for dining out, and $20 for a pair of Levi’s jeans.”

Commenting on the message, Li Liang, 33, a Chinese working in the US, told the Global Times on Monday, “I bought a second-hand Porsche in the US for just $2,000. I had never dreamed of driving a Porsche in China.”

According to data compiled by the International Monetary Fund in 2006, supposing a country’s total tax revenue is 1,000 yuan, the percentage of taxes accounted for in a product is 700 yuan in China, 160 in the US, 186 in Japan and 300 in the 15 eurozone countries.

The data shows that the ratio of taxes in the cost of a product is higher in China than in the developed countries. It’s 4.17 times higher than in the US, 3.76 times that of Japan and 2.33 times that of the the eurozone countries.

A report released in May by the Beijing-based Central University of Finance and Economics noted that China’s tax burden is higher than in many middle- and high-income countries.

For a country with a per capita GDP of more than $2,000, the ideal average tax rate is 23 percent. China’s per capita GDP was $3,700 in 2009, but the average tax rate was 32.2 percent.

Gao Peiyong, director of the Institute of Finance and Trade Economics at the Chinese Academy of Social Sciences, said at a financial forum Saturday, “People need to do research on the tax system in China to solve the problem.” He said 90 percent of the tax revenue in China is paid by Chinese enterprises, so the enterprises have to raise the product prices to remain profitable.

But not all experts regard high taxes as the key factor behind the high cost of living in China.

“High taxes can affect product prices but are not the main reason for the high living cost. The price can also be affected by the logistics cost and other costs in the distribution process,” Fan Yong, deputy dean of the Taxation Department at the Central University of Finance and Economics told the Global Times on Monday.

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