ECONOMIC - TAXATION

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP80-00809A000700140113-9
• Release Decision: RIPPUB
• Original Classification: R
• Document Page Count: 5
• Document Creation Date: December 22, 2016
• Document Release Date: August 9, 2011
• Sequence Number: 113
• Publication Date: October 19, 1953
• Content Type: REPORT

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CLASSIFICATION RESTRICTED
SECURITY INFORMATION
CENTRAL INTELLIGENCE AGENCY
INFORMATION FROM
FOREIGN DOCUMENTS OR RADIO BROADCASTS
COUNTRY China
SUBJECT Economic - Taxation
HOW
PUBLISHED Monograph
WHERE
PUBLISHED Peiping
DATE
PUBLISHED Mar 1951
CD NO,
DATE OF
DATE DIST. /g Oct 1953
NO. OF PAGES 5
SUPPLEMENT TO
REPORT NO.
THIS IS UNEVALUATED INFORMATION
Rain Ching-chi Lun-ts'ung(Symposium on the New Economy), compiled
by Tao Ta-yang, published by the Shih-yueh (October) Publishing
The new commodity tax law has three special points:
a. Whereas the former national tobacco tax, wine tax, and mine prod-
ucts tax each had its own set of regulations, these now have been combined
under the new tax law.
b. In the new tax law, articles subject to commodity taxes are divided
into ten general classifications and 44 items. There are 21+ more items than
formerly. Moreover, canned beverages, Grade B hides, furs, and feathers, ce-
ment, first-class building materials, first- and second-grade cosmetics, and
other goods have been further broken down into categories. Such things as
high-grade silk yarn, hemp yarn, woolen fabrics, canned food, spices, first-
grade hides and furs, lacquer, glue, dyes and bleaches, glass utensils, electri-
cal appliances, hardware, clocks and watches, pens, phonographs, bicycles, auto-
mobiles, etc., are all industrial articles or good-grade goods not ordinarily
used by the common people, and consequently high taxes on them are not a burden.
Although cotton goods, wheat flour, soap, marine products, ordinary leather
STATE ~ VY
ARMY R
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Under the KMT, more than 20 different kinds of taxes were in use in China.
Now that all continental China except Tibet has been completely liberated, the
time has co:ce to establish a new tax system.
Tar: regulations -nd principles for four of the lh tax categories have already
been promulgated; these are the commodity tax, industrial and commercial tax,
customs tariffs, and salt tax. We will examine below all the tax categories
except customs tariffs and the salt tax.
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goods, ordinary paper goods, tea, vegetable oil, coal, and other items of
everyday use are necessities to many people, still the tax rate was reduced
only 3-5 percent, which is too small a reduction. Certain agricultural prod_
ucts -- raw silk and native cotton cloth -- are tax exempt. Native tobacco,
although a luxury, is considered an agricultural product and the tax rate has
been reduced from 60 percent to 20 percent. Machinery for industry is also
tax exempt; this is obviously to expand profits in industry.
c. In the new tax laws, the tax rate for tobacco and wine is the
highest. It has been increased from 100 percent to 120 percent. The cos-
metic tax has been increased from 45 percent to 80 percent. The tax on re-
ligious articles has been increased from 60 percent to 80 percent. This not
only restricts useless consumption of these articles by the people, but in
addition increases the national income, and is exceptionally fair.
Valuable medicines from all provinces of the Northeast, Northwest,
and Southwest, as well as fruits, dried lichee, dried longan, muskmelons,
lotus seeds, and other items from the Southeast provinces are shipped and sold
throughout the country and are properly taxed as a national source of wealth.
The tax on both natural and manufactured commodities which are ex-
ported has been rescinded to reduce costs, to encourage foreign trade, and
to aid in obtaining foreign currency.
In the past, goods within the country were subject to the commodity
tax; those imported from abroad were subject to both the commodity tax and
customs duties. Now we must rescind this regulation LT.e., the commodity tax
on imported goods and include such taxes in the customs duties.
2. Industrial and Commercial Taxes
This is a new tax item and is most important, especially in urban areas.
Five special points may be noted:
a. In the past, income tax was divided into corporation income tax
and merchant (business) income tax, and four hinds of special business taxes.
They he latter four?/ have now been unified into one, thus eliminating three
taxes. -
b. The tax rate is set on a sliding scale for each kind of industrial
and commercial enterprise. In general, those enterprises profitable to the
country and people must be developed, and are encouraged by light taxes. Im-
pcrta t industrial and commercial enterprises had their tax rates lowered by
40-200 percent.
c..State-controlled enterprises, except for special national enter-
prises, will all be taxed under a single system. Naturally the government
wants state-controlled enterprises to meet a fix.:d financial obligation. At
the same time, private industry should not suffer from unequal competition
due to tax burdens.
d. Elimination of tax loopholes will insure that all enterprises do
their full share in increasing the national income.
e. The new tax collection system has now eliminated the old methods
of inspection of records and inventories and has instituted a complete-
bookkeeping, declaration system known as the Democratic Deliberation Method
.Lee below7. This method will reduce time and expense.
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3. Income Tax on Wages and Fees
The tax on wage income of employees of private industries, mines, and
commercial firms must be increased, but not that on the incomes of employees
and teachers in government agencies and schools and state-controlled enterprises.
At present, wages are generally figured in terms of rice or millet. Those who
receive small incomes, that is, a monthly income of 200 catties or less, are
tax-exempt. For incomes of 201 catties and above, the tax begins at one percent,
and increases one percent for each additional 50 catties, to a maximum of 6
percent. For convenience in calculating, fractions of less than one-half
catty are figured as one-half catty; those between one half and one catty are
figured as one catty.
Originally taxes were uniformly deducted from pay at the employer
level. Now income is to be reported by the employees themselves. This system
of collection must be extended. But in general, because income is not fixed,
there are some types of income which are taxed by periodic and cumulative taxes.
This is a relatively more complicated procedure and could be changed into a
categorized, sliding scale tax.
4. Taxes on Income From Interest
This tax item includes taxes on bonds, compap~ debentures, stocks,
and interest from bank deposits. But since the currency is not yet completely
stabilized and because of black market profits, people may be encouraged to
save more by adopting the tax system used in Shanghai, where the highest rate
officially is 5 percent.
At present, a group of industrial and commercial enterprises, especially
the latter, often have a higher rate of profit than banking enterprises and
take in large sums which they use as capital. This is prohibited by the Banking
Administration, but actually there is no way to stop it. Therefore, if the tax
rate on interest were heavy -- 20 percent or above -- it might not eliminate
such practices, but it would limit then to a comparatively few cases. Since
a certain group of industrial and commercial enterprises does not have well-
kept accounts and it is difficult to examine their books, an investigation tax
could be imposed on them to prevent them from evading taxes completely.
There are four general classifications of stamp taxes, which include
37 items. The four general classifications are: commercial certificates, pro-
duction (rights) certificates, occupational certificates, and permits.
In the commercial certificates classification, five items are widely
used, but tax evasion is easy. These five are bills of lading, delivery per-
nuts, receipts, drafts, and expense accounts. The cost in men and in money
needed by the revenue organs to collect this tax in cities with thousands of
factories is more than the tax returns. Therefore, for these five items, which
require certification, the payments from now on could be made collectively and
automatically by each factory over 10-day periods. In this way, the tax pay-
ment could be checked for honesty, by comparing it with the business taxes paid
but industrial and commercial enterprises, which are evidence of the gross
volume of business. From this a stamp tax could be derived. Those businesses
which cannot fix the tax by gross amount at each period must still affix stamps
as heretofore, to avoid tax evasion. The tax rates for these different certifi-
cates may still be regulated as at present.
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The amount to be free from inheritance taxes shall be determined.ac-
cording'to the financial status of the inheritors. In general, the tax rate
will be 3 percent. For inheritances in excess of a fixed amount, there will
be a cumulative tax of from 4 to 40 percent. These taxes are to be reported
on a voluntary basis.
This tax is already being collected in the North China Administrative
Area on livestock, food, cotton, and local cloth, but the other administrative
areas make little use of this tax. In many cases the farmers exchange these
commodities for items of personal use, so taxation is not appropriate; and,
furthermore, these items usually are taxed later as straight commercial goods.
Any such taxation system should be set up based on local conditions.
8. Slaughtering Tax
This tax is levied either by the animal or by the weight of the animal.
The rate is generally 10 percent, but to avoid excessive slaughter of draft
oxen, the rate on beef should be 20 percent. The tax will be collected at
the slaughterhouses.
Since a farm is taxed according to its produce, this tax should be
levied only in urban areas. It will be levied according to assessments to be
made in each area. The unit area will be the square shih-chang or the shih-
mou. Generally, assessments should be in accord rd roughly with the Shanghai
scale, which does not exceed 7.5 or 10 mils L,' unit of area], but some of the
larger cities can assess as high as 15 to 30 mils to combat wasteful hoarding
of land.
These taxes will vary in each area. They should be elastic so as to
conform to fluctuations in value and in income. Buildings for personal use
should be taxed at a lower rate than those for rental.
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These will include taxes on places of amusement,, feasts, refrigerated
foods and beverages, and hotels. The taxes will be levied in accordance with
the value of the establishment to the nation as a whole. For instance, feasts
will be taxed heavily to cut down food wastage, while people's theaters will.
be taxed lightly to encourage their development.
These are to be levied on vehicles and boats. Private vehicles will
have a higher tax than commercial vehicles since they are for luxury use. Boats
will be divided into power and sail; power boats will be taxed according to ton-
nage and sailboats according to either size or tonnage.
According to an analysis of the Northeast and of the Wu-han area, only
about 20 percent of the enterprises have well-organized accounting records;
the other 80 percent have poor records or none. For this reason, taxes cannot
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yet be assessed by examining business records, but that must
of be the assessed by other
means. The most effective system will probably be Deliberation
Organization and the Deliberation Method (P'ing-i tsu-chih, ping-i fang_shih):
In each city and town, each district will organize Deliberation Organiza-
tion branches which will be familiar with the people and businesses in each
street and area. The personnel from these Deliberation Organizations will work
in close cooperation with the tax collection agencies.
There are two types of Deliberation Methods; deliberation in depth and
deliberation in width. In the deliberation in depth, each type of enterprise
is studied separately and a general assessment is made; then each individual
business is studied and assigned a portion of the general assessment. The
individual businesses will be divided into small, medium
will be assessed within these three categories. In the deliberation in width,
a city or town is divided geographically, and assessment is made on each sepa-
rate business without regard to category of industry. A compilation of the
results of the two methods is used for the final assessments.
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