TAXATION IN COMMUNIST CHINA 1950-59

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79R01141A002100040001-2
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 124
• Document Creation Date: December 23, 2016
• Document Release Date: July 9, 2013
• Sequence Number: 1
• Publication Date: July 1, 1961
• Content Type: REPORT

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N? 87
TAXATION IN COMMUNIST CHINA
1950-59
July 1961
INOT TO BE REPRODUCED IN WHOLE OR
IN PART WITHOUT THE PERMISSION OF
THE CENTRAL INTELLIGENCE AGENCY
CENTRAL INTELLIGENCE AGENCY
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NOTICE
This report has been loaned to the recipient by
the Central Intelligence Agency. When it has
served its purpose it should be destroyed or
returned to the:
CIA Librarian
Central intelligence Agency
V.5aEhin, ton 23, D. C.
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TAXATION IN COMMUNIST CHINA
1950-59
CIA/RR ER 6 1-32
CENTRAL INTELLIGENCE AGENCY
Office of Research and Reports
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STAT
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FOREWORD
This report, which covers the years 1950-59, describes the methods
that Communist China used to raise government revenue for its program
of rapid industrialization and estimates the impact of taxes on the
Chinese people. The economic progress of China since 1950 and the role
of the government budget are described briefly in Section I. Specific
measures for raising revenue are described in detail in Section II.
The burden of taxes on households in China is discussed in Section III.
A critique of the entire Chinese revenue structure is presented in
Section IV, on the basis of traditional Western criteria of equity,
social justice, economic rationality, adequacy of revenue, and ease
of administration.
All available statistical data for 1950-59 have been examined in
order to make the report as definitive as possible. Adequate data for
1960 are not yet available.
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CONTENT
Page
Surangry and Conclusions 1
I. Role of the Budget
A. General Economic Background
B. Functions of the Government Budget
C. Trends in Revenue Collections
II. Sources of Budgetary Revenue
A. Tax Structure
3
3
6
7
11
11
1. Agricultural Taxes
11
a. Tax on Agricultural Output, 1950-57
12
(1) Tax Base
12
(2) Tax Rates
13
(3) Agricultural Surtaxes
15
(4) Agricultural Tax as an Allocating Mecha-
nism
15
b. Changes in Agricultural Taxes in 1958 . ? .
?
16
c. Miscellaneous Agricultural Taxes
18
2. Taxes on Industry and Commerce
19
a. Tax Structure, 1950-52
19
(1) Business Tax
19
(2) Commodity Tax
21
(3) Stamp Tax
23
(4) Salt Tax
23
b. Major Tax Changes in 1953
24
c. Major Tax Changes in 1958
25
3. Customs Duties
29
4. Miscellaneous Taxes
31
B.
Revenue from State Enterprises
33
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1.
Profits
Page
314.
a. Distribution of Profits
34
b. Remitting of Profits to the Treasury
37
2.
Depreciation Reserves
38
3.
Other Budget Revenue from State Enterprises ?
?
.
39
a. "Return of Surplus Working Capital"
39
b. "Receipts from the Sale of Fixed Assets" ?
?
?
39
c. "Income from Other Business Activities" ?
?
?
39
C.
Other Budget Revenue
4o
1.
Domestic Bonds
40
2.
Loans from Abroad
43
3.
Income from Insurance Operations
14.14.
III.
Tax Burden
47
A.
Statistical Evidence of the Tax Burden
47
1.
Average Money Tax Rate
14.8
2.
Comparison With Tax Burdens in Other Countries . .
57
B.
Impact of the Tax Burden
59
1.
Effect of the Structure of Taxes
59
2.
Effect of the Level of Income
61
3.
Effect of Public Expenditures
61
4.
Effect of Nonmonetary Income
62
5.
Factors Peculiar to China
62
IV.
Evaluation of the Chinese Tax System
65
A.
Equity and Social Justice
65
1.
Progressive Nature of the Tax System
66
a. Agricultural Tax
66
b. Commodity Taxes
67
c. Taxes on Private Business
71
d. State Enterprise Profits
71
e. Summary of Tax Progressivity
71
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Page
2. Equitable Treatment of Taxpayers 72
a. Taxes on Private Enterprise 72
b. Agricultural Tax 73
c. Indirect Taxes 74
B. Economic Rationality 74
1. Effect of Taxes on the Allocation of Resources . 75
2. Effect of Taxes on the Price Level 77
3. Effect of Taxes on Incentives 78
C. Costs of Administration 78
D. Alternative Forms of Taxation 80
E. General Appraisal 83
Appendixes
' Appendix A. Methodology . 85
Appendix B. Source References 113
Tables
1. Communist China: Selected Indicators of Economic Develop-
ment, Selected Years, 1950-59 4
2. Sources of Budgetary Revenue for Selected Countries for
the Period 1955-58 8
3. Communist China: Sources of Budgetary Revenue, 1950-59 10-
4. Communist China: Rates of the Commodity Tax for the
Period 1950-52 22
5. Communist China: Comparative Rates of the Commodity Tax,
1950 and 1953 25
6. Communist China: Rates of Commodity Circulation Tax,
1953 26 '
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7. Communist China: Tax Rates for Industrial and Commercial
Products Under the Consolidated Industrial and Commercial
Tax, 1958
8. Communist China: Chinese Import Duties, by General Com-
modity Class, Effective May 1951
9. Communist China: Imports and Customs Collections,
1950-57
?
10. Communist China: Estimated Profits and Depreciation Re-
serves of State Enterprises, 1952-59
11.
12.
Communist
1950-58
Communist
1950-57
China:
Distribution of Domestic Bonds,
China:
Receipts of Credit from the USSR,
13. Communist China: Estimated Budgetary Receipts from State
Insurance Operations, 1953-58
14. Communist China:
1950-59
15. Communist China:
16. Communist China:
1950-59
Estimated Consumer Money Income,
Total Money Taxes, 1950-59
Estimated Consumer Money Taxes,
17. Communist China: Average Rate of Money Taxation,
1950-59
18. Communist China: Indexes of Consumer Money Income and
Taxes, 1951-59
19. Communist China: Effect of Tax Increases on Retail
Prices, 1952-59
20. 'Ratio of Government Tax Collections to National Income by
Selected Countries, 1950 and 1955-59
21. Communist China, USSR, US: Average Rate of Consumer Money
Taxation and Personal Money Income Per Capita, Selected
Years, 1951-59
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Page
28
29
31
35
49
51
52
53
55
56
58
58
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Page
22. Communist China: Percentage Shares of Direct
and Indirect Taxes in Total Money Taxes Paid by
Consumers, 1950-59 60
23. Communist China: Tax Rates on Selected Consumer
Goods for the Period 1958-60 69
24. Communist China: Commodity Tax Rates on Se-
lected Consumer Goods for the Period 1958-60 . 70
25. Communist China: Treatment of Selected Com-
modity Groups Under Gross Receipts Tax and Net
Income Tax for the Period 1950-57 76
26. Communist China: Retail Commodity Taxes,
1950-59 93
27. Communist China: Commodity Taxes and Profits
Taxes Levied at the Manufacturing Level and
Shifted to Consumers, 1950-59
28. Communist China: Derivation of Consumer Money
Income After Taxes Corrected for Changes in
Retail Prices (Column 4, Table 18), 1951-59 . .
29. Communist China: Derivation of Estimate of
Effect of Tax Increases on Retail Prices (as
Shown in Table 19), 1951-59
Charts
Figure 1. Communist China: Relationship of Budg-
etary Revenue to Gross National Prod-
uct, 1950-59
97
105
109
Following Page
6
Figure 2. Communist China: Allocations of Budg-
etary Expenditures, 1950-59 6
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Following Page
Figure 3. Communist China: Changes in Tax Collec-
tions, 1952-59 12
Figure 4. USSR and Communist China: Agricultural
Income Tax Rates, 1952 16
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TAXATION IN COMMUNIST CHINA
1950-59
Summary and Conclusions
The system of government revenue in Communist China during 1950-59
was well designed to carry out the general program of forced-draft
economic development. The system as a whole, as well as specific tax
measures, supported the regime's policies of (1) rapid industrial
growth at the expense of personal consumption, (2) domplete socializa-
tion of the economy, and (3) increasing control over every aspect of
economic activity. A flexible and effective tax system contributed to
the control of inflation and the reconstruction of the economy in
1950-52, to the socialization of private business and farming and the
development of heavy industry in 1953-57, and to the "leap forward"*
growth of industry in 1958-59. Budgetary revenue in 1959 was more
than eight times the level of 1950. Taxes paid directly and in-
directly by household consumers increased from 17 percent of their
monetary income in 1950 to 34 percent in 1959.
Traditional sources of government revenue in China -- such as agri-
cultural and salt taxes and customs duties -- were retained and in-
creased during 1950-59. The regime developed new sources of revenue,
including profits of state enterprises (treated as part of the over-all
tax structure in this report) and a wide range of industrial commodity
taxes. These new forms of revenue provided more than 90 percent of
budgetary income in 1958-59. The increases in revenue and the broaden-
ing of the tax base permitted the Communists to channel more of their
resources through the government budget and to direct funds toward pri-
ority investment goals, primarily the rapid development of heavy industry.
The regime successfully integrated the tax system with its general
economic program. Tax laws were formulated to favor heavy industry and
state enterprises and to penalize activities considered to be nonessen-
tial. Consumer goods, particularly luxuries and semiluxuries, were
taxed at rates generally 3 to 10 times higher than industrial materials,
and many products of heavy industry were not taxed at all. Discriminatory
taxes were levied against private industry and commerce during 1950-57
in support of other measures that were taken to encourage socialization
* Under the "leap forward" program, men and machines were worked at an
extraordinarily intensive pace in order to accelerate the expansion of
physical output, almost without regard to the cost or quality of out-
put or the balance among different products.
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of private business. State-owned and cooperative enterprises accounted
for more than 95 percent of economic activity in China by 1958, and
the Communists then simplified agricultural and business tax laws and
eliminated nearly all discriminatory features.
Communist China had a high individual tax burden in relation to
per capita income. Measured by the conventional ratio between money
taxes on consumers and money income of consumers, this tax burden was
34 percent in 1959, with per capita money income for that year being
only about 106 yuan ($43).* The regime has softened the psychological
impact of the tax burden by gradually increasing the proportion of
taxes paid indirectly. More than 95 percent of all money taxes paid
by individuals in China are now included in retail prices and are not
identified as taxes.
The tax system of Communist China from 1950 to 1957 probably was
somewhat progressive, but the need for progression in Chinese taxation
was reduced during this period as the Communists eliminated the tra-
ditional inequalities in personal income and wealth through various
forms of expropriation. The substantial revision of tax laws in 1958
removed nearly all elements of progression in the Chinese tax system.
The system in 1959 probably was proportional or even slightly regres-
sive. The reduction of inequalities in before-tax income that resulted
from redistribution of income and wealth was partly offset by the re-
gressive effect of large increases in the commodity taxes on consumer
goods.
The Chinese Communists adapted their tax structure reasonably well
to their program for changing social and economic conditions, although
in a few instances outmoded tax laws were permitted to remain in force.
The Chinese usually took advantage of opportunities to simplify specific
tax measures and to reduce costs of collection when these changes did
not conflict with the raising of budget revenue needed for their pri-
mary economic objectives.
* All yuan values in this report are in current yuan unless otherwise
indicated. The official Chinese exchange rates between the yuan and
Western currencies imply a rate of 2.46 yuan to US $1. This rate may
not, however, reflect for all purposes the true value of the yuan in
terms of dollars.
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I. Role of the Budget
The system of government revenue in Communist China during the
period 1950-59 was designed to support the general program of forced-
draft economic development. The primary objectives of the government
budget were (1) to restrict the rise in personal consumption and to
increase the rate of capital formation (through a tax system that took
an increasingly larger share of personal income) and (2) to direct
funds (through budgetary expenditures) into priority investment goals
that contributed to the rapid development of heavy industry.
A. General Economic Background
When the Communists extended their hegemony over all of China
late in 1949, they acquired an economy that was primarily agricultural.
The great majority of China's 550 million people lived in rural areas)
with a per capita annual income of less than $50. The beginning of a
heavy industrial base had been made in Manchuria under the Japanese,
and modern textile mills were operating in a few coastal cities. In
other parts of China, however, industry consisted only of handicraft
and small-scale processes. Furthermore, the economy was disrupted by
15 years of war and a devastating inflation.
The immediate objectives of the new government were to establish
firm administrative control throughout China, to stabilize prices, to
begin reconstruction, and to institute land reform. The first few years
of the decade were taken up with these basic tasks. The further goals
of the Communists were to begin the development of heavy industry and
to establish the preeminence of the state-managed economy over the pri-
vate sector. The First Five Year Plan (1953-57) was devoted to these
objectives and was successfully fulfilled in most of its aspects.
The Communists have claimed a phenomenal economic advance over
the last 10 years, although they admit that China is still comparatively
backward and will not become hie-11y industrialized for several decades.
The figures in Table 1* are indicative of the effort that has been made
since 1950 and of the emphasis given to heavy industry at the expense
of consumption.
The figures in Table 1 reveal Communist China's rapid economic
development, with emphasis on heavy industry. Rebuilding from inter-
national and civil war was responsible for a large Part of the in-
creases during 1950-52, but even after this reconstruction period the
* Table 1 follows on p. 4.
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Table 1
Communist China: Selected Indicators of Economic Development 2/
Selected Years., 1950-59
Unit of Measure
1950
1953
1959
Average Annual
Rate of Increase12/
1953-59
(Percent)
Industrial items
Crude steel
Thousand metric tOns
606
1,774
13,350
40.0
Coal
Thousand metric tons
42,920
69,68o
347,800
30.7
Cement
Thousand metric tons
1,410
3,880
12,270
21.2
Metalcutting machine
tools
Units
3,312
16,700
70,000
27.0
Electric power output
Million kilowatt-hours
4,550
9,200
41,500
28.5
Consumer items
Grain 1/
Million metric tons
125
157
190
3.2
Edible vegetable oil
Thousand metric tons
607
1,009
11460
6.4
Cotton cloth
Million linear meters
2,520
4,690
7,500
8.1
Estimated gross national
product (GNP)
Billion yuan in current prices
45.42
82.38 152.20
10.8
a. 2.J. For serially numbered source references, see Appendix B.
b. Average annual rates of growth are computed at the compound interest rate between the two terminal years.
c. Average production for the 3-year period 1952-54.
d. Including tubers.
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progress achieved exceeded that of most developing Asian countries.
China's estimated gross national product (GNP) in constant prices dur-
ing the First Five Year Plan (1953-57) increased at an average annual
rate of 7.4 percent, whereas the GNP of India during its First Five
Year Plan (1951-55) increased at an average annual rate of only 3.3
percent. The annual rate of growth in GNP of most other Asian coun-
tries also was less than that of China during this general period
(1951-56) -- Pakistan, 2.8 percent; Ceylon, 4.0 percent; Philippines,
5.1 percent; and Burma, 5.9 percent. 2/ Only Japan among the other
Asian countries maintained a rate of growth as high as that of China.
The production of major industrial items in Communist China in
1959 greatly exceeded prewar levels. The sharp advance in industry
was made possible by mobilizing an increasing share of resources through
the state budget and economic plan and also by a decline in the propor-
tion of national income devoted to consumption. The Chinese reported
that by 1957 the division of national income between savings and con-
sumption, which was 19.7 to 80.3 in 1952, had changed to 23.7 to
The ability of Communist China to sustain a faster rate of eco-
nomic growth than most other Asian countries from 1950 through 1959,
and to keep well ahead of population growth during the same period, is
partly a reflection of differences in the Chinese pattern of economic
organization. Before launching their full-scale economic drive in 1953,
the Chinese Communists consolidated their control over the country.
They conducted an intense ideological campaign that covered nearly
every facet of life in China and conditioned the people to respond
properly to state authority. Totalitarian control then made it pos-
sible to employ China's vast population in a program of rapid indus-
trialization. At the same time, a systematic plan for exploiting
China's extensive natural resources began to emerge, with advice and
technical assistance from the USSR. In summary, the essential pre-
requisites to rapid economic progress in China were recognized by the
regime as (1) a firm and effective central administration, (2) a com-
paratively responsive population, (3) a central economic plan, and
(4) technical and material support from the USSR.
In spite of this Impressive start toward industrialization,
the Chinese people in 1959 were still poor. The largest gains in pro-
duction were in heavy industry, leaving personal consumption compara-
tively depressed. From 1953 to 1959, per capita GNP increased 60 per-
cent, but personal consumption per capita increased only about 25 per-
cent and was still extremely low. Although by 1959 Communist China
* In comparison, calculations of GNP in Chinese domestic prices yield
a roughly parallel increase -- savings at a level of 25 percent in 1952
and 31 percent in 1957. V
5
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claimed to rank among the first 10 nations in production of steel,
pig iron, coal, and electric power, the per capita production of these
items remained very low. Nevertheless, the effort made during 1950-59
will facilitate China's continued progress, even though the rate of
growth may be somewhat slower than that attained in the immediate past.
B. Functions of the Government Budget
The government budget in Communist China, together with the
credit and cash plans of the state bank, represents a financial con-
trol mechanism for carrying out the state economic plan. About three-
fourths of all gross domestic investment in China was financed in 1959
through the central and local government budget, and the remainder was
financed from extra-budgetary funds of local government units and in-
dividual enterprises.
The Chinese Communists have stated that budgetary revenue
goals are determined by requirements for expenditure: "Since the
amount of revenue to be collected is estimated on the need for govern-
ment spending, it is usually sufficient to cover the amount of expendi-
ture." 2./ At the same time, the Chinese recognized the interdependence
between growth in revenue-raising capability and in national income.
They asserted that in planning budgetary revenues, both needs and feasi-
bility must be considered: that "the root of budgetary growth lies in
economic development and in the increase of national income" and that
"the increase of budgetary revenue will in turn accelerate economic
growth." The concomitant rise in budgetary revenue and in GNP since
1950 is shown in the chart, Figure 1.* ?../
The high rates of growth in GNP and in industry during 1950-59
indicate that the Chinese Communist budget effectively met the criterion
of providing adequate revenues for economic development. Following the
sharp decline in the private sector of the economy, which contributed
only 30 percent of industrial output in 1953 and less than 1 percent in
1956, an increasing share of total investment was channeled through the
budget. Of the total expenditure for capital construction in China
during the First Five Year Plan exclusive of farm investment, 88.5 per-
cent was made through the government budget, the remainder having been
made by state enterprises from their own funds, by local governments
with funds outside the consolidated state budget, and by private enter-
prises. The Chinese also financed through their budget such normal
government expenditures as national defense, administration, and cer-
tain social services, although these three categories declined as a
proportion of total expenditures. The chart, Figure 21* indicates the
* Following p. 6.
6
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Figure 1
Communist China: Relationship of Budgetary Revenue
to Gross National Product, 1950-59
Index of Budgetary Revenue (in Current Prices)
35086 7-61
900
800
700
600
500
400
300
200
100
o
1959
S
1955,
1957
1956
195;
1953
1952,
1951
1950.
0 100 200 300
Gross National Product
400
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Figure 2
Communist China: Allocations of Budgetary Expenditures
1950-59
52.8
11 0%
(Billions
6.8
11
11
11
4
4
4
4 /
/
of Current
16.8
/
/
/
/
Yuan)
24.6
/
30.6
I j
I ;
I /
I
I I
/
IIf
I
Ii
I ;
;
I ;
I ;
I ;
I
18.1%
Administration
and Other
Education and
Social Service
National
Defense
Economic
Construction
12.3%
8.3%
61.3%
13.2%
14.8%
12.2%
14.0%
20.0%
23.6%
15.0%
52.0%
13.6%
26.8%
50.2%
44.6%
21.8%
/
41.6%
25.6%
1950
1952 1954 1956 1959
35087 7-61
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manner in which additional budgetary revenues have been allocated
mainly to the budget entry "Economic Construction" in order to achieve
a high rate of economic growth. lj
Growing budgetary allocations to economic construction, rising
from 26 percent in 1950 to 61 percent in 1959, were the primary source
of financing Communist China's industrial growth. Economic construction
consists of allocations to state-operated enterprises for acquisition
of fixed assets, for supplementary working capital, and for certain
miscellaneous business expenses. Expenditures on fixed assets com-
prised most of this total, accounting for about 85 percent during
1956-59. Industry received more than one-half of the total expendi-
tures for economic construction during 1950-59, with a preponderant
emphasis on heavy industry. In 1959, for example, industry received
61 percent of the total; railroads and communications, 16 percent;
agriculture and forestry, nearly 16 percent; and all other sectors,
7 percent. The ratio of investment in light industry to that in heavy
industry was approximately 1 to 6 during the period 1952-59. These
extensive investments increased the value of productive fixed assets*
in China by 49,220 million yuan from 1952 to 1958 (equal to one-half
the entire GNP for 1957).
C. Trends in Revenue Collections
During 1950-59, both the magnitude and sources of budgetary
revenue in Communist China underwent marked changes. The traditional
sources of government revenue -- such as agricultural and salt taxes
and customs duties -- were retained and made slightly more productive,
but they were greatly exceeded by new sources of income, such as levies
on the profits of state-operated enterprises. New sources of revenue
were essential in order to achieve the increase of nearly seven and
one-half times in total government revenue from 1950 to 1959.
The general composition of revenues in Communist China in 1959
4ffered considerably from that in most other countries. Although
/taxes by 1959 were more than four times the level of 1950, they con-
tributed a progressively smaller share of total budgetary income in
China. The development of state-owned industry and commerce resulted
in large profits, which accounted for the biggest single flow of funds
into the budget. In Table 2,** China's sources of budgetary revenue for
a recent 4-year period are compared with those of several other coun-
tries.
* Productive fixed assets are defined by the Chinese as "factory
buildings, machinery and equipment used in production, railroads)
highways, transportation implements of seaport docks used in trans-
portation, and warehouses of commercial and financial operations."
** Table 2 follows on p. 8.
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Table 2
Sources of Budgetary Revenue for Selected Countries
for the Period 1955-58
Percent of Total Budgetary Revenue
Communist
China
India
Japan
USSR
Taxes
47
69
92
73
Of which:
Commodity taxes
36
26
41
44
Customs duties
2
14
3
Direct taxes on income
and wealth
9
23
47
27
Other income
53
31
8
27
Of which:
Income from state enterprises
47
Domestic bond sales
2
Loans from abroad
1.4
a. 2/
The Chinese Communists had to rely on profits from state enter-
prises for nearly half of their budgetary revenue because millions of
Chinese peasants received much of their income in kind rather than in
money and did not provide a monetary tax base sufficiently large to
meet the growing revenue requirements of the regime's development plans.
Nevertheless, taxes played a more important role in the economy than
their share of total budgetary income might suggest. In addition to
the revenue that they provided, taxes were used by the Chinese to help
redistribute income, to adjust commodity prices, and to strengthen the
accounting system in industry and commerce. Furthermore, the distinc-
tion between the usual corporate profits tax and net earnings remitted
to the budget by Chinese state enterprises is somewhat artificial for
purposes of description of revenue. Profit contributions of industry
and commerce to the government sector may be called "income taxes" or
"profit remittances" or even "consumption taxes," but the source of
revenue is identical. The impact on the enterprise paying the tax may
vary, however, according to the way in Which the tax is levied.
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The growing dominance of the socialized sector in the economy
of Communist China is clearly reflected in the trends since 1950 in
budgetary revenue sources. Scarcely a third of government income was
obtained from state-owned and cooperative enterprises in 1950, whereas
nearly two-thirds were contributed by private business and the private
farms. By 1959, however, at least 98 percent of budgetary revenue
originated in the socialized sector, including cooperative agriculture.
The Chinese took advantage of this shift in sources of budgetary reve-
nues to reduce the cost of collection of revenue. Discriminatory taxes
originally levied on the private sector of the economy, partly for
nonrevenue purposes, together with the early campaigns against tax
evasion, required a relatively large administrative effort. With the
decline of the private sector this administrative burden decreased,
and in 1958 a greatly simplified tax structure was introduced for all
of industry, commerce, and agriculture.
The Chinese Communists have never given a detailed breakdown
of their budgetary revenues. Table 3* includes fragmentary data from
a number of sources as well as information from annual Chinese budget
reports.
* Table 3 follows on p. 10.
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Table 3
Communist China: Sources of Budgetary Revenue
1950-59
Million Current Yuan
Tax revenue
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
Agricultural taxes
1,910
2,169
2,704
2,711
3,278
3,054
2,965
2,970
3,260
3,300
Salt taxes
268
339
405
461
521
481
483
620
620
650
Customs receipts
356
693
481
505
412
466
542
460
580
650
Industrial and commercial taxes
2,363
4,745
6,147
8,250
8,972
8,725
10,098
11,300
14,179
15,698
Private business
1,910
3,312
3,458
3,422
2,872
1,671
640
240
N.A.
N.A.
Cooperatives
N.A.
N.A.
190
534
925
1,128
1,580
2,205
N.A.
N.A.
Joint public-private enterprises
N.A.
N.A.
184
265
422
556
1,580
2,855
N.A.
N.A.
State enterprises
453
1,433
2,315
4,029
4,753
5,370
6,298
6,000
N.A.
N.A.
Miscellaneous tax receiptst
1
167
32
40
35
19
o
140
91
172
Total tax revenue
4,898
8,113
9,769
11,967
13,218
12,745
i4088
15,490
18,730
20,470
Nontax revenue
Profits from state enterprises
I
I
4,653
6,369
8,457
9,404
11,414
11,363
18,719
28,590
Depreciation reserves and other
-870
...3,050
income from state enterprises
I
I
1,077
1,301
1,503
1,786
2,0163,
o23
3,301
4,770
Receipts from foreign loans
244
625
1,305
438
884
1,657
117
o
o
Receipts from damestic bonds
260
0
0
0
836
619
607
650
790
o
Receipts from insurance operations
N.A.
N.A.
N.A.
52
70
84
o
27
lo
N.A.
Other income
247
1,179
756
1,635
1,269
908
501
410
310
330
Total nontax revenue
1,621
4,854
7,791
9,795
13,019
14,11.58
14,655
15,530
23,130
33,690
Total budgetary revenue
6.4212
1.2.4267
17,560
21,762
26,237
27,203
28,743
_3.1,222
41,860
54,160
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II. Sources of Budgetary Revenue
A. Tax Structure
The Communists inherited the Nationalist tax structure in
both urban and rural areas when they assumed power in all of China in
1949. They acquired for the first time a diversified system of taxa-
tion that enabled them to begin mobilizing the resources of China for
the early years of reconstruction.
Many changes were made, beginning in 1950, to fit taxes into
the pattern of socialist development in Communist China. The tradi-
tional forms of revenue, such as the salt tax and customs duties, were
subjected primarily to changes in rate, with only slight alterations
in structure and objectives. Sharp discriminations were incorporated
into the new taxes on commerce and industry, which were designed to
help direct private resources into useful activity and to eliminate
nonessentials. A progressive tax was levied on agriculture to assist
in the objective of redistributing incomes in the countryside. Minor
tax revisions were made in 1953, and substantial changes in tax laws
were made in 1958, when many simplifications were achieved and the en-
tire tax structure was overhauled to reflect the dominance of socialist
forms of organization.
Tax collections declined as a proportion of the total budgetary
revenue from about 75 percent in 1950 to less than 40 percent in 1959.
Nevertheless, the volume of tax receipts in 1959 was four times the
level of 1950. The trend in the collections of major taxes was uneven,
as indicated in the chart, Figure 31* with industrial and commercial
taxes showing the largest increase.
1. Agricultural Taxes
The Chinese Communists made numerous changes in the agri-
cultural tax during 1950-59 to fit the varying stages of their land
reform program and used the tax to further their political objectives
among the rural population. During the disruptive years of the civil
war, ending in 1949, when adequate data were lacking on land, popula-
tion, and output, taxes were collected according to "roughly estimated
quotas." 22./ In the new areas that the Communists acquired after 1949,
progressive taxes generally were imposed on the gross income from land.
These taxes continued in force with minor variations through 1957.
Proportional tax rates on agricultural income were applied only in some;
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areas of North China and Manchuria where redistribution of land had
been completed. In 1958, following establishment of farm cooperatives
throughout rural China, proportional rates became universal.
a. Tax on Agricultural Output, 1950-57
(1) Tax Base
The agricultural tax in China is levied on the "set
yield" of the land rather than on the actual yield obtained each year.
Committees designated by local government units compute the set yield
in relation to the normal annual output of the land in their areas,
giving consideration to the natural capacity of the soil, the extent
of irrigation, and the use of fertilizers and assuming normal methods
of cultivation. Once determined, this set yield may remain unchanged
for several years. The agricultural tax is levied on income-yielding
land regardless of whether the actual farms are producing food grains,
industrial crops, orchard products, vegetables, or other crops. In
most cases the tax is not levied on income from livestock raising or
nonagricultural side occupations such as peasant handicrafts. About
90 percent of the agricultural tax is paid in farm produce, primarily
grain, and the remainder is paid in cash.
The "set yield" of the Chinese agricultural tax
has some disadvantages common with the "assessed value" of land in
real estate taxation. The spread ?in the normal real estate tax be-
tween assessed values and market values that increases during a gen-
eral price rise is paralleled in the Chinese tax by the difference
between the set yield and the increasing annual output. In Kansu
Province a set yield that was established in 1952 at a level close to
the actual yield represented only 51.96 percent of the actual yield
in 1956, and in Anhwei Province the set yield established in 1952 was
only 63.1 percent of the actual yield in 1955. The nationwide set
yield in 1957 was reported to be 69 percent of the actual production
in that year. 11/ This wide separation between assessed and actual
values makes the tax less related to ability to pay than a more cur-
rent levy such as the income tax and also leads to greater variations
between taxes paid by individual farms. In individual cases in Com-
munist China the set yield has been reported to be as much as 15 to
20 percent higher than the actual output, with effective tax rates
correspondingly high. 12/
On the other hand, the set yield assessment gives
farmers an incentive to develop their land and increase production
without fear of still higher taxes. Furthermore, the set yield and
Its corollary, the fixed tax, induce farmers to cultivate all of
their land every year because partial cultivation results in lower
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Figure 3
Communist China: Changes in Tax Collections, 1952-59
260
240
220
200
180
160
140
Industrial and
Commercial Taxes
Salt Taxes
Customs Duties
Agricultural Taxes
120
100 Index 1952=100
80
1952 1953 1954 1955 1956 1957 1958 1959
35088 7-61
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income and a higher effective tax rate. The Communists have stressed
the incentive aspect by assuring the peasants that taxes (and assessed
income) will be fixed for a number of years. 12/ At the same time, if
it became necessary to raise agricultural tax revenue, the government
had the option of raising tax rates or the tax base or both.
The Chinese Communists have used a system of tax
reduction, rather than deduction from net agricultural income, to make
allowances for special circumstances. Reduction of taxes is granted
for crop losses caused by natural disasters. Local committees deter-
mine the extent of loss and express it as a percentage of the set
yield. A percentage reduction in the normal tax payable, which varies
with the extent of the loss, is then permitted. For example, a crop
loss of less than 20 percent carries no tax reduction, a crop loss of
20 to 30 percent carries a 25-percent tax reduction, and a crop loss
of more than 60 percent results in complete tax exemption. In addi-
tion, a tax reduction of 10 to 20 percent was granted under certain
conditions to households that were considered to be impoverished. As
an incentive to increase the total area under cultivation in China,
newly plowed land is tax exempt for a period of 3 to 5 years. 111/
(2) Tax Rates
The Chinese Communists have applied either pro-
gressive or proportional tax rates to the set yield, depending on the
extent to which land reform had been completed in specific areas. The
major objectives of land reform were to redistribute landlords' hold-
ings among the peasants and to achieve a more equitable distribution
of income among people farming their own land. Under this program,
more than 100 million acres of land had been distributed to 300 million
peasants by the end of 1952. 12/ The objectives of land reform had
been met sufficiently in parts of North China and Manchuria by 1951 to
permit the use of proportional rates in those areas. One of three
rates -- 13, 18, or 20 percent -- was applied to each specific area.
In 1952 these three rates were raised to 15, 21, and 23 percent. In
some areas where proportional tax rates were used, personal exemptions
were permitted in order to take account of variations in the size of
families. 1?../
A series of progressive tax rates was applied to
the set yield in most areas of Communist China during 1950-57. The
first set of rates, established in September 1950, began at 3 percent
of the first 200 to 253 pounds of grain per capita in the household
and advanced by one percentage point for each income bracket to a
maximum of 42 percent. For the year 1950 only, the following three
methods for calculating income under this tax measure discriminated
against landlords and favored tenants: (a) income from rented land
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was discounted 20 percent and taxed at only 80 percent of its assessed
value; (b) income from land rented out VW marked up 20 percent before
applying the tax; and (c) self-cultivated land was taxed on actual
assessed income. This set of tax rates, without the discriminatory
feature, was applicable for several additional years after 1950 in
areas where land reform had not been completed, comprising about 34
percent of the rural population. In areas where landlords had been
"eliminated" but farm income still differed among families, a new set
of rates was established ranging from 5 to 30 percent. The minimum
rate for these areas was raised to 7 percent in 1952. These areas
covered about one-third of the farm population in 1951. 11/
To determine the tax payable, the farmer's set
yield of grain (as assessed by the local committee) was divided by
the number of persons in his household. This per capita income was
multiplied by the appropriate rate in the tax table to obtain a per
capita tax, which was then multiplied by the number of persons in the
household to obtain the total amount of tax due from the household.
The tax rates and tax payments may be illustrated as follows IV:
Per Capita Income
(Catties)*
Per Capita Tax
(Catties)
Tax Rate
(Percent)
200
16
8
300
30
lo
400
48
12
500
70
14
600
96
16
700
119
17
800
144
18
900
171
19
1,000
200
20
Once the number of dependents in a household had been
determined, no subsequent change was permitted for tax purposes, even
though births and deaths might add to or subtract from the actual number
in the household. 12/ This inflexible position did not permit any tax
relief as the size of the family increased, but it made the agricultural
tax easier to administer. Because both the set yield and the size of
the household were fixed for a period of years, the actual tax collec-
tions from individual households did not change.
The tax imposed by the Chinese Communists on agricul-
tural income and the income tax imposed on farm income in the USSR in
One catty equals 1.1023 pounds avoirdupois.
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1952 have approximately the same degree of progressivity. In the chart,
Figure 4,* the Chinese tax rates are those cited above for 1952, whereas
the Soviet rates are those applied to collective farmers in the same year.
(3) Agricultural Surtaxes
Agricultural surtaxes, not included in revenues
of the state budget, were collected by local government units in Com-
munist China at varying percentages of the basic tax. They were
authorized in 1950 at rates not to exceed 15 percent of the basic
agricultural tax, but in practice they sometimes exceeded this maxi-
mum. For example, the Chairman of the Kwangtung Provincial Government
reported that in 1951 as many as 225 surtaxes and other levies were
imposed by local government units on farmers in that province, with a
total rate of nearly 100 percent of the basic agricultural tax and, in
some individual cases, as high as 300 percent. 22/
The official directive on agricultural taxes for
1952 stated that "a11 local surtaxes- in the agricultural tax system
are hereby abolished." 21/ It has been widely reported, however, that
surtaxes continued to be collected after this official decree of 1952.
Thus a surtax of 5 percent was levied in 1954 throughout Kwangtung
Province to be used as relief funds in flood-stricken areas. ..21/ Lower
Units of government also continued collections of surtaxes to meet part
of their revenue needs. The central government again officially ap-
proved of the collection of surtaxes by announcing in the national
budget plan for 1956 a ceiling of 22 percent for local levies and sur-
taxes. The amount of agricultural surtaxes actually collected in 1956
was reported to be approximately 15 percent of the basic agricultural
tax. Agricultural surtaxes in 1958 and 1959 amounted to 440 million
yuan each year. 22/
(4) Agricultural Tax as an Allocating Mechanism
The agricultural tax was used before 1956 by the
regime in combination with its price-fixing powers to achieve effec-
tive control over the proportion of agricultural land devoted to in-
dustrial crops. Differential taxes and exemptions continued to be
used after 1956, as they were in the USSR, to encourage certain crops.
In assessing land sown to an industrial crop (such as cotton, tobacco,
or hemp), a set yield in terms of that crop itself was not used but,
Instead, the set yield of food grains that could be obtained from the
same land. State purchase prices for industrial crops were set so that
Income from industrial crops generally was higher than from food grains,
although the value of the tax paid on both crops was equal. In 1950
* Following p. 16.
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and 1951, cotton growers, in addition to their more favorable crop
assessment, also were granted preferential tax rates. Because of
the tax and price advantages that were granted, the Chinese reported
that acreage sown to cotton doubled between 1949 and 1952. EL/ In
1953, incentives to cotton growers were modified by altering the offi-
cial purchase price ratio between rice and ginned cotton from 8.1 to 1
in 1951 and 1952, to 6.75 to 1. 22/ In 1956 the official prices for
oil-bearing crops were raised to stimulate production. Because of price
and tax advantages granted to growers of industrial crops, the average
amount of food grain crops taken in taxation in 1952 was reported to
be 14.2 percent of the total value, whereas the tax proportion of in-
dustrial crops was only 8.3 percent. In 1957, these ratios were 12.2
percent and 6.4 percent, respectively. 2.61
b. Changes in Agricultural Taxes in 1958
A new agricultural tax regulation was approved by the
Standing Committee of the National Peoples Congress on 3 June 1958, 27/
which designated farm cooperatives as principal taxpayers and substi-
tuted proportional for progressive tax rates throughout China. The new
law also gave more discretion to local government units in tax adminis-
tration, retained local surtaxes, and provided stability of the set
yield for a number of years.
The effort to group all rural families in Communist
China into large farm cooperatives was pushed vigorously in 1955, and
by the middle of 1956 only 3 percent of farm families still remained
outside the cooperatives. With this transfer of land and farm equip-
ment from private to collective ownership, the cooperatives became by
far the largest single group of prospective taxpayers in rural areas.
In the latter part of 1958 the cooperatives were merged into large
communes, which in turn became the major taxpaying units. In 1959 the
production brigade, a subdivision of the commune and corresponding in
size to the old cooperative, was designated as the taxpaying unit. The
only individual farm families required to pay the tax under the new
legislation were those who remained outside the cooperatives and co-
operative members who still owned private plots of land. State farms
(relatively very few in number) and other organizations receiving agri-
cultural income also were named as taxpayers. The bulk of the peasant
households were thus excused from payment of the agricultural tax
directly and felt the effect of the tax only in an indirect way through
reduction in their share of the cooperative income. The number of tax-
payers was greatly reduced, from roughly 100 million households to less
than 1 million cooperatives, a procedure that reduced the cost of ad-
ministration.
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USSR and Communist China: Agricultural Income Tax Rates, 1952
30%
25%
20%
10%
5%
0
0
(0)
Figure 4
Communist
China
USSR
10
20
30
40
50
60
70
80
90
100 USSR?Rubles
(2)
(4)
(6)
(8)
(10)
(12)
(14)
(16)
(18)
(20) Communist China?Catties*
Agricukurel Income an Hundreds)
35089 7-61
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The method of assessing agricultural income was changed
only slightly in the new tax measure. The set yield in terms of food
grain crops was retained as the assessment for land producing food
grains and potatoes but was raised from earlier levels. Under the new
regulations, land devoted to industrial crops, which previously had
been assessed on the basis of the same type of land sown to food
grains, was assessed slightly higher than food grains but still lower
than the actual income froth industrial crops. The Chinese claimed
this change removed some of the advantages held by producers of in-
dustrial crops compared with producers of food grains but still left
sufficient incentive to enlarge the total acreage planted to industrial
crops. E_V For tax purposes, all crops had to be converted into the
principal food grain of the region according to ratios fixed by the
provinces. The set yield was to remain unchanged over the 5-year
period beginning in 1958.
The national average rate of tax for 1958 was set at
15.5 percent of the set yield, with a maximum in any case of 25 percent.
The State Council was empowered to fix the average rate for each prov-
ince, autonomous region, and municipality, which in turn were authorized
to fix the average rates of tax for each local subdivision under their
administration. If necessary, these local subdivisions (counties) could
then request authority to set the individual rates of tax for different
areas under their control. By this delegation of authority, local
government units, with their detailed knowledge of crop conditions,
could adjust tax rates over comparatively small areas to reflect the
general capacity to pay. The need for this local authority was evi-
dent from a Chinese report in 1959 that poor soil made up 20 to 30 per-
cent of the total cultivated land in many provinces, with yields
usually 50 percent lower than the average. 22/ In effect, the local
authorities could impose a higher than average tax on cooperatives or
production brigades in fertile areas and a lower rate on those working
less productive land. In Kiangsi Province in 1959, for example, the
counties were authorized to vary the tax rate on production brigades
from 11 to 20 percent of the assessed yield. 3.2/
Aside from the basic agricultural tax, to be paid to
the Central Government, three local surtaxes were authorized: (1) a
general surtax not to exceed 15 percent of the basic tax; (2) a special
surtax, applied to certain profitable industrial and garden crops,
not to exceed 30 percent of the basic tax; and (3) a surtax ranging
from 10 to 50 percent of the basic tax, to be levied against inde-
pendent farmers not members of a cooperative. Under this series of
rates the highest possible effective rate would be 45 percent of the
assessed yield, which would apply to an individual farmer paying at
the maximum rates for the basic tax, the local surtax, and the surtax
against farmers outside the cooperatives.
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The Communists insisted that with the advent of co-
operatives it was "no longer necessary to enforce the system of pro-
gressive taxation." 51/ Although proportional tax rates were in fact
decreed, they were modified by the permission granted local authori-
ties to vary the rates by different areas, some of them smaller in size
than a county. In this way, some progression was retained, even though
not applicable directly to individuals. Furthermore, the new tax rates
discriminated sharply against independent farmers, representing an in-
ducement for them eventually to join the cooperatives. In at least
some cases, private farmers paid lover taxes in previous years, when
progressive rates were used and no special surtax was levied against
independent farmers.
In 1958 the government planned to increase the total
amount of the agricultural tax collection by 4.6 percent above that
of 1957 but at the same time planned to reduce the national average
tax rate by one percentage point to 15.5 percent. The increase in
collections was to be accomplished by raising the set yield, or tax
base, by 12 percent. The new set yield of 270 billion catties (135
million metric tons) was then said to be equivalent to 78 percent of
the actual farm output in 1957 (in terms of "fine grain"). 32./
c. Miscellaneous Agricultural Taxes
A number of miscellaneous local taxes were collected
in rural areas of Communist China during 1950-591 with variations by
locality and custom. Among them were taxes on the proceeds from the
sale of live animals, vegetables, wood, charcoal, and other products;
a butchery tax where part of the meat is sold; "etiquette fees" on the
birth of a child; a tax on remittances received from relatives over-
seas; and others. .13./ The revenue from these taxes was small compared
with the basic tax and surtaxes on agricultural income..
A pastoral tax imposed in Inner Mongolia was in effect
a form of capital levy. A progressive tax was levied annually until
1959 on the livestock holdings of each household, with a personal ex-
emption of 15 head for the taxpayer and each of his dependents. Rates
ranged from 0.7 percent (for herds of fewer than 300 sheep) to 7 per-
cent (for herds of 3,000 or more), with adjusted rates for other
animals. In 1959, after 95 percent of the pastoral households in the
area had entered communes, a proportional tax on commune holdings of
livestock was substituted for the tax on individual households. The
only individuals subject directly to the tax on livestock in Inner
Mongolia were the few who remained outside the communes. ]Ii/
In 1959 the Chinese Communists imposed a progressive
tax on agricultural income in Tibet, based on actual yield. An
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exemption of 100 kilograms of grain was granted for each agricultural
worker in the household. Remaining income was taxed at rates that
started at 3 percent for the bracket from 100 to 150 kilograms and
advanced to 30 percent for more than 2,800 kilograms. Landlord and
tenant shared the tax according to their grain shares, which usually
were at the ratio of 1 to 4.
2. Taxes on Industry and Commerce
During the first 8 years of the Communist regime in China,
taxes levied on commercial and industrial activity were more appropriate
to the private than to the public sector of the economy. It was only
after individual businessmen had been absorbed by the state that
changes were made in taxes on business and industry. The tax structure
was then greatly simplified and adapted to socialist forms of organi-
zation.
a. Tax Structure, 1950-52
(1) Business Tax
A tax on the gross or net receipts of industrial
and commercial enterprises operating for profit, officially called a
"business tax," was in effect in Communist China from 1950 to 1958. 3.2
It was applied in 1951 as either a gross receipts tax or a net income
tax, although this alternative feature apparently was dropped some
time after 1951, at which time taxpayers were required to pay both
parts of the tax. State-operated enterprises, whose profits reverted
to the state treasury, were exempt from the net income tax, but were
required to pay the gross receipts tax where applicable. Any trade or
manufacturing business considered to be a monopoly of the state was
exempt from both types of tax. Also exempt from both taxes were enter-
prises owned by "poor artisans," any business owned by a family as a
subsidiary occupation only, and aY1 other business occupations desig-
nated for exemption by the Ministry of Finance. Certain cooperatives
were not subject to this tax law, and other cooperatives that came
under its purview were given preferential treatment from time to time.
An enterprise with an adequate bookkeeping system
was permitted to file its own tax return. Many small enterprises in
Communist China maintained only rudimentary accounting records or none
at all and could not meet the accounting requirements of the tax law.
The Communists devised a special procedure to collect the business tax
from these small firms. Their payments were determined by "democratic
tax appraisal committees" consisting of representatives from govern-
ment, business, and the community.
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The rates for the gross receipts tax ranged from
1 to 3 percent on merchandise sales and from 1.5 to 15 percent of
gross receipts for services. In addition to this discrimination be-
tween sales and services, the rates that applied within both of these
two classes gave concessions to those industries and services which
the Chinese Communists considered to be most important in their plans
for economic development. Enterprises in the following heavy industry
groups paid a tax of only 1 percent of gross receipts: (a) mining and
metallurgy (iron and steel, nonferrous metals, coal, sulfur, mica,
silicon, and other minerals); (b) machine building (engines, machine
tools, agricultural machinery, and other industrial machines); and
(c) basic chemicals (sulfuric acid, nitric acid, hydrochloric acid,
caustic soda, and other basic chemicals). A rate of 2 percent was
assessed against the following enterprises: (a) rubber products
(automobile tires and rubber products for industrial use); (b) fer-
tilizers (bean cake, peanut cake, and bone); and (c) drugs and medical
supplies. The general retail trade bore a rate of 3 percent, together
with enterprises producing such less essential items as fans and um-
brellas, clocks and watches, cosmetics, tobacco products, and "goods
for ritual use."
The rates on gross receipts for services were
applied in a similar, discriminatory pattern. Public utilities such
as water supply, electric power, gas, and telephones all paid a tax
of 1.5 percent, as did transportation enterprises and banks. For ac-
tivities such as storage and construction contracting, the rate was
3 percent. A rate of 4 percent was levied on hotels, advertising
firms, "story-telling tea houses," and catering services. Inter-
mediate rates of 4 to 8 percent applied to pawnbrokers, employment
services, and auctioneers, and the highest rate of 15 percent applied
to stock underwriting and "middleman service in commercial transac-
tions."
Net business income was taxed at progressive rates,
with no minimum income specified and a maximum rate of 30 percent at
10,000 yuan. A discriminatory feature of the net income tax was a
series of tax reductions that applied to certain activities which the
government wished especially to encourage. These reductions, stated
as a percent of the net income tax payable, ranged from 10 to 40 per-
cent, as follows:
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Reduction of 10 percent: Certain essential consumer goods
Dairy products
Hospital supplies
Reduction of 15 percent: Rubber and leather products
Some construction materials
Printing equipment
Hand tools and machine repairing
Reduction of 20 percent: Certain transportation items
Some chemicals
Export commodities
Reduction of 30 percent: Telecommunications equipment
Certain more important chemicals
Some machine-building activities
Reduction of 40 percent: Heavy machine tools, generators,
farm machinery
Iron and steel, nonferrous metals
Ship and vehicle manufacturing
Electric power generation
An enterprise qualifying for the highest reduction
thus had its effective tax rate reduced from a possible high of 30 per-
cent to only 18 percent. At least 300 million yuan in tax reduction
were granted during the 7 years that this discriminatory feature was in
effect. In 1957 the Chinese Communists abolished reductions from the
net income tax, declaring that nearly all forms of private enterprise
had become socialized and that all commodities to which the exemptions
had applied would be capable of control through the state plan. .3..Y
(2) Commodity Tax
A tax based on the wholesale price of specified
commodities was first applied in Communist China in January 1950. 37/
Resembling a manufacturers excise tax, it was payable by producers or
wholesale buyers at rates that varied from 3 to 120 percent of the
taxable value of the commodity. Although the tax was amended in 1953
and again in 1958, many of the items appearing in the original measure
were carried over into subsequent regulations, some of them at approxi-
mately the ,same effective rates.
Taxes on commodities manufactured or processed
domestically were collected at the plant by the tax collector per-
manently stationed there. In the case of smaller plants, an "estimate
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of output" was made by a visiting tax inspector, and taxes were col-
lected on this basis, implying that at least in some cases records
may have been inadequate for tax purposes or that some taxpayers were
attempting to avoid a part of the tax. The taxpayer, however, could
claim a rebate if his records indicated that a lower tax was payable.
Imported goods were taxed at the time customs duties were levied.
The tax rates applied against the taxable value
had a wide range, as indicated in Table 4.
Table 4
Communist China: Rates of the Commodity Tax
for the Period 1950-52
Percent
Tax Rate on the,
Commodity Taxable Value 21
Class A cigarettes
Cosmetics
120
100
Articles for religious use
80
Beer
4o
Sugar
30
Wool yarn and thread
20
Cement
15
Chemical paints and dyes
10
Copper, tin, lead
5
Rubber belting and hose
3
a. The taxable value of each commodity plus the
tax paid on the commodity is equal to the offi-
cial wholesale price of the commodity.
The commodities subject to the commodity tax and
the schedule of rates reinforced the discriminatory objectives of the
business tax (described in III, 2, a, (1), above). Many commodities
taxed at the lowest rate under the gross receipts tax and given the
highest reduction under the net income tax (twin features of the
business tax) were not subject to the commodity tax -- for example,
products of the machine-building industries, iron and steel, liquid
fuels, and many basic chemicals. All of these items were considered
priority products by the Chinese Communists. On the other hand, com-
modities that bore the highest rates of the gross receipts tax and
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that were granted no reduction under the net income tax were nonessen-
tial items subject to the highest rates under the commodity tax -- for
example, tobacco products, cosmetics, wine, and articles for religious
use.
(3) Stamp Tax
In December 1950 the Chinese Communists imposed a
stamp tax on all documents used in commercial transactions and in the
transfer of property. 31/ Land deeds issued to farmers under the Com-
munists' program of land distribution, all forms of transportation
tickets, and sums amounting to less than 1.5 yuan (on other than amuse-
ment tickets)'were all tax exempt.
The tax was applied either as a fixed amount to
certain types of documents or as a percent of the value of the transac-
tion represented by the document. Rates under the latter feature
ranged from 0.01 percent (for insurance certificates only) to 0.3 per-
cent (for bond certificates, merchandise invoices, cash receipts; and
other documents). It was required that stamps be affixed to the docu-
ments concerned, although with the approval of the local tax bureau
the taxpayer could dispense with stamps and pay the tax periodically
in the form of a single money payment.
(4) Salt Tax
The Communists have continued the salt tax, 12/
the most dependable source of government revenue in China for cen-
turies. The ultimate burden of this commodity tax falls almost en-
tirely on the household consumer. It is strictly a revenue measure,
providing from 1 to 3 percent of the total budget income each year
&tiring 1950-59.
The earliest salt tax imposed by the Communists in
1950 was stated in terms of grain payments per unit of salt produced;
with rates that varied from one broad area of the country to another.
In East China, for example, the tax payment was in rice, whereas in
Northeast China it was in millet or kaoliang. In the latter part of
1950 the salt tax rates were reduced, and payments were stated in
monetary terms. The lowest rate of 3 yuan per picul* of salt applied
in Northwest China, 5 and 6 yuan per picul applied in some other areas,
and the highest rate of 7 yuan per picul was effective in North and
East China. These tax rates were applicable to table salt only.
Fishery salt was taxed at 30 percent of the rates for table salt, and
salt destined for agricultural and industrial uses and for export was
not taxed. Rates of the salt tax were raised about 20 percent in 1957
but were reduced slightly in 1959.
* One picul equals 133.33 pounds.
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The salt tax was levied only against producers of
salt and not at wholesale or retail levels. The specific tax rates
applicable were supervised by local offices of the government's General
Salt Tax Administration. The government-owned salt companies, engaged
in production of salt and its distribution to bulk users and retailers)
together with a number of private producers and distributors of salt,
were given the responsibility of adjusting market prices "so as to
equalize supply and demand." In this way the government controlled
production, distribution, and sale of salt throughout China.
Although relatively small in the context of total
government revenues, the salt tax has been one of the easiest of all
Chinese taxes to administer and has been a stable source of revenue.
In effect, the government salt companies paid the tax to the govern-
ment salt tax offices. The private salt companies, until they were
socialized, followed the same procedure as the government salt com-
panies.
b. Major Tax Changes in 1953
A general adjustment was made in January 1953 in the
taxes on commerce and industry that altered only slightly the rates
of existing taxes but revised methods of calculating some taxes and
subjected a small group of products to a new commodity tax. 1[2/ Al-
though discussion had occurred for several years on the need to sim-
plify the tax structure, the changes made in 1953 contributed only
slightly toward this objective.
A simple rate change was made in the business gross
receipts tax, increasing the rates by one-half of one percentage point
in all brackets except the top. The minimum rate became 1.5 percent
of gross receipts, whereas the top bracket remained at 15 percent.
The rates and percentage reductions of the business income tax ap-
parently were not changed.
The number of individual items subject to the com-
modity tax (the producers or wholesalers tax) was reduced from 358
to 173. Although a few of the excused items were placed under the
new sales tax, some of the reduction in items may have been accom-
plished by consolidation of subitems (for example, four classes of
cigarettes were reduced from four items under the old tax to a single
Item under the new tax). The new tax rates applied directly to the
average wholesale price. In Table 5* the revised rates for broad
classes may be compared with the previous effective rates.
Table 5 follows on p. 25.
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Table 5
Communist China: Comparative Rates of the Commodity Tax
1950 and 1953
Percent
Commodity
Revised 1953
Tax Rate
Comparable Ra-4e
of 1950 Tax2'.1
Articles for religious use 50 44.4
Tobacco 40 to 50 31 to 54.5
Cosmetics 45 50
Food and beverages 5 to 30 2.9 to 28.6
Consumer goods7 to 20 6.5 to 13.1
Textiles 5 to 15 4.8 to 16.7
Minerals and mineral products 5 4.8
Food grains 2 0
a. The tax rates under the 1950 tax have been made comparable to
those of the 1953 tax by dividing the tax rates of Table 4 (p. 22,
above) by a number equal to 1 plus the tax rate in Table 4.
A new sales tax was introduced in 1953, the forerunner
of the much broader turnover tax that was initiated in 1958. This new
"commodity circulation tax" was said to be based on the experience
gained in the USSR and to be especially suited to socialist countries.
It was levied on only 22 commodities, chosen because their sales volume
was relatively large and concentrated and because they were entirely
or largely under control of the state-operated economy. This new
sales tax replaced all other taxes applicable to these specified com-
modities -- such as the commodity tax, the business tax, and the stamp
tax -- and these commodities were then subject to only one tax from
production to consumption.
The base of the commodity circulation tax was the state
price of the commodities concerned, with variable rates as shown in
Table 6.*
c. Major Tax Changes in 1958
A new consolidated industrial and commercial tax was
promulgated in 1958 to replace the commodity tax, the commodity
circulation tax, the gross receipts tax, the net income tax, and the
* Table 6 follows on p. 26.
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Table 6
Communist China: Rates of Commodity Circulation Tax
1953
Percent
Commodity Tax Rates
Tobacco and wine 22 to 66
Certain consumer goods (such as
flour and matches) 10 to 22
Cement 22
Leather products and fabrics 10 to 20
Paper 10 to 18
Mineral oil 13
Nonferrous metals and timber 10
Tires and tubes 9
Coke 7
stamp tax -- all of which were thereupon abolished. 121/ The extensive
changes that emerged, representing a new approach to the taxation of
business, were preceded by discussion in the Chinese Communist press
that took two general forms: (1) a criticism of existing tax regula-
tions in terms of both structure and administration and (2) an asser-
tion that China had reached the stage of socialist development that
required entirely new forms of taxation.
The need to simplify the system of taxing business
had been recognized by the Chinese Communists for several years.
There were said to be too many taxes, too many rates, and too many
collection channels. The double taxation of end products, as well
as the taxation of intermediate products, had in many cases reached
a stage of absurdity. i[_2/ For example, a firm manufacturing thermos
bottles paid three taxes on the finished product -- a commodity tax,
a gross receipts tax, and a stamp tax on the documents of sale. In
addition, five commodity taxes were levied on the intermediate prod-
ucts fabricated by this firm to assemble the end product -- one each
for the vacuum flask, for the mold, for the aluminum casing, for the
paper, and for the aluminum sheet.lia/
Private enterprise in China had been eliminated by
1958, with a few unimportant exceptions, and practically all indus-
trial and commercial activity was in the hands of state enterprises,
joint public-private firms, and cooperatives. The Communists, there-
fore, insisted that the old tax structure had served its purpose and
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that a new concept of business taxation was required. They followed
the Soviet practice of applying the turnover tax on a broad scale,
including industrial products, retail sales, imports, purchases of
certain farm produce, and service trades.
Under the new regulation, important simplifications
were achieved in tax assessment and collection. The five primary
levies previously enforced on industry and commerce were replaced
with only one tax. Intermediate products manufactured by a firm for
inclusion in end products were no longer taxed. Each commodity would
be taxed only once during the production process and again at retail
if it reached that stage of distribution. (Taxation was retained
temporarily, however, on three intermediate products -- cotton yarn,
leather, and kaoliang wine). These two changes alone probably re-
sulted in a substantial reduction in the volume of tax accounting
records that had to be maintained by both taxpayers and tax collectors.
Taxes, after the 1958 reform, were levied on prices
received by producers and distributors for the commodities concerned
rather than on the state wholesale prices -- a change in the tax base
that further simplified tax accounting records. Taxes were due at
the time that sales proceeds were received, a change that removed the
previous drain on working capital to finance tax payments. The regu-
lations required that the tax be paid on the day that the proceeds of
the sale were deposited in the seller's bank. The largest part of the
total tax collections from industry, therefore, represented simply a
bank transfer from the taxpayer to the tax office at the time that
sales receipts were realized. Similar advantages accrued to retail
trade and service activities, whose taxes were due on the day that the
proceeds of the sales were received but whose actual payments could be
made at intervals varying from 1 to 30 days, according to individual
circumstances. Importers had to pay the tax when customs were due, on
a base that included c.i.f. (cost, insurance, and freight) value and
customs duties for industrial products and that consisted of c.i.f.
value only for agricultural products. The levy on the purchase of farm
produce by the wholesale trade network was based on the purchase price,
with the tax due when payment for the purchase was made.
Rates under the new tax were designed to achieve the
same income as the five taxes that it replaced. The highest rate for
industrial and agricultural products was 69 percent for cigarettes,
and the lowest, for unbleached cotton cloth, was 1.5 percent. Retail
sales were taxed at 3 percent -- making the highest combined rate 72
percent (for cigarettes). Communications and transportation were taxed
at 2.5 percent of their realized revenue, whereas the service trades
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paid from 3 to 7 percent. The new rates, by broad categories applic-
able to industrial and agricultural products, are shown in Table 7.
Table 7
Communist China: Tax Rates for Industrial and Commercial Products
Under the Consolidated Industrial and Commercial Tax
1958
Percent
Commodity Tax Rate
Tobacco, wine, and alcohol 20 to 69
Consumer goods (including cosmetics) 6 to 55
Foodstuffs 2.5 to 44
Leather, hair, and feathers 10 to 40
Textiles and yarn 1.5 to 35
Light electrical equipment 11 to 25
Cement, brick, and timber 5 to 20
Paper and pulp 3 to 20
Coal and petroleum products 2 to 20
Rubber products 10 to 18
Rolled metal products 11 to 15
Chemical acids and alkalies 6 to 12
Metal ores and metallurgical products 5 to 10
Machines and machinery and other
manufactured goods 5
Among the most important increases in the rates shown
in Table 7 are the levies of 11 to 15 percent on rolled metal products
and 5 percent on pig iron, steel, and machines. State producers of
these products had previously been subject only to the 1.5 percent
gross receipts tax and the insignificant stamp tax, although all their
profits were remitted to the state. (Private industry had been of no
consequence in production of these items for several years.) This
change reflected the government's hope of shifting a part of the bud-
get revenue obtained in these activities from profits remittances to
the commodity tax. The Communists had acknowledged that total profits
in these (and other) state enterprises should be reduced as an incen-
tive to better management and the reduction of costs. At the same
time, variations in profits and costs were so great among different
activities and among individual plants in a single industry that often
very little change was possible between taxes and profits. The in-
creases achieved in these particular tax rates in 1958, although small,
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were a first step in the solution of the uneven tax-profits ratio and
put the Chinese Communists closer to the Soviet pattern in this re-
spect. Nevertheless, it was planned that taxes would continue to be
less important than profits, at least in the short run, as a source of
budget revenue from commerce and industry as. a whole.
3. Customs Duties
The Communists levied an ad valorem tariff on Chinese im-
ports, ranging from 5 to 100 percent, and on the export of six specific
commodities. Customs duties had accounted for no more than 5.5 percent
of the total government income in any year and in most years less than
3 percent. The import duties were levied on c.i.f. value or, where this
was not available, on an adjusted domestic wholesale price. The com-
modities were divided into five general classes, as shown in Table 8.
Table 8
Communist China: Chinese Import Duties, by General Commodity Class 2../
Effective May 1951
Percent
General Commodity Class
Essential goods (such as machinery,
industrial raw materials, and agri-
culture)
Less essential goods (such as kerosine,
carbolic acid, and machinery belting)
Nonessential goods (such as coal and
fresh fruit)
Protected goods (such as cotton and woolen
textiles, sugar, and matches)
Rates on C.I.F. 12/ Value
5 to 20
25 to li-0
50 to 100
10 to 30 percent higher
than the difference between
the wholesale price of the
domestically produced
article and the c.i.f.
price of the imported
articles
a. 102/
b. Cost, insurance, and freight.
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The high rates in the last commodity class probably were
justified initially as necessary to protect infant industries. There
Is no evidence available, however, of the extent to Which these high
rates may have been used to limit the import of goods whose domestic
production the Chinese were encouraging. The need for customs protec-
tion of home industry would in any event have been of short duration
because the Communists organized nearly all foreign trade in 1951 under
a system of government trading companies.
All exports from Communist China were duty-free except the
following six commodities: hog bristles, taxed at 30 percent; peanuts,
at 15 percent; peanut oil, at 10 percent; tung oil, at 10 percent; and
peppermint oil and menthol, at 55 percent. There were no apparent
reasons, apart from revenue, for assessing duty on these products, be-
cause their export was subject to direct controls. Export duties were
abolished on 1 January 1959.
Chinese Communist import duties may have served a nonrevenue
function in trade with non-Communist countries. Imports from the West
consisted of consumer goods and less essential machinery and raw mate-
rials that fell in the categories carrying the highest import duties.
Duties on these imports from the West probably were kept high to equalize
in part the price differences between imported goods and more costly
domestically produced goods. The Chinese have stated that if the value
of commodities traded with the West were converted into yuan at the of-
ficial yuan rate of exchange for Western currencies and compared with
domestic prices, there would be losses on exports and profits on imports.
The losses that Chinese foreign trade companies incurred by procuring
products for export at domestic prices are said to have been made up by
the gains realized on selling imported goods in the domestic market. 1.41/
The selling gains were achieved, apparently, even after payment of the
relatively high tariff duties. A rough measure of the price differential
between domestic prices and the landed costs of imported goods (including
tariff) is implied in the formula used to assess imports when the c.i.f.
value is unknown. In cases where it was not possible for customs
authorities to obtain an adequate c.i.f. value, they ascertained the
dutiable value of a commodity by the following formula:
Dutiable value
Domestic wholesale price x 100
-
100 + import tariff + 20
This formula has the effect of discounting the domestic wholesale price
by 20 percent in addition to the required discount for import tariff in
order to equate it with the c.i.f. value.
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Customs duties averaged about 12 percent of the value of
total imports but represented a generally decreasing proportion of im-
ports, as indicated in Table 9.
Table 9
Communist Mina: Imports and Customs Collections 2/
1950-57
Million Current Yuan
Year
Imports
Customs Collections
Customs Collections
as a Percent of Imports
1950
2,120
356.5
16.8
1951
3,500
693.6
19.8
1952
3,740
481.2
12.9
1953
11.,590
504.8
11.0
1954
41427
412.2
9.3
1955
6,080
466.1
7.7
1956
5,297
542.0
10.2
1957
41840
460.0
9.5
a.
The rise in customs duties in 1951, both in absolute mag-
nitude and as a proportion of the value of imports, showed the effect
of introducing a new and generally higher tariff schedule in May of
that year. The annual decline of customs collections as a proportion
of imports from 1951 through 1955 probably reflected two primary fac-
tors: (a) a shift in the composition of imports to the more essential
commodities required in economic development (which carried lower import
duties) and (b) a change in the direction of trade from Western countries
to countries of the Soviet Bloc that tended to reduce customs receipts
because the Chinese maintained a lower schedule of rates for those coun-
tries with whom they had government-to-government trade agreements.
Until 1955, agreements of this kind existed primarily with countries of
the Soviet Bloc, although subsequently trade agreements were signed
with governments of non-Communist countries as well.
4. Miscellaneous Taxes
Miscellaneous forms of taxation were instituted in Com-
munist China primarily for revenue, but they made a relatively small
contribution to the total government receipts. Most of these taxes
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provided income only to local government units, supplementing revenue
from taxes shared with the central government.
The national conference on tax administration, which the
Chinese Communists held in November 1949, drafted a program to provide
revenue for central and local government from 14 basic taxes, including
one on "salaries and other remuneration" and another on inheritance.
Neither of these two taxes was implemented./E./ The Communists have
never taxed most types of inheritances and gifts (except real estate
gifts) or the income of wage earners, although wages have been subject
to a tax ranging from 1 to 2 percent.
Income from interest was taxed at the flat rate of 5 percent
beginning in December 1950. The tax base included interest received on
bank deposits, bonds and other securities, and loans to employees but
excluded interest from "stocks invested in industrial development";
loans by banks; personal credit among workers; interest receipts amount-
ing to less than 5 yuan; and nonprofit funds held for education, cul-
tural, and charitable purposes. As a safeguard against evasion, admin-
istrators of the nonprofit funds were required to obtain tax-exemption
certificates and to furnish reports on disposal of their interest in-
come. The tax had a withholding feature that required those who paid
interest to remit the tax to the treasury. For providing this service,
the tax withholder was authorized to deduct 1 percent of the tax pay-
ment. In 1958, all the revenue from this tax (as well as its adminis-
tration and the authority to set rates) was given to local (provincial)
governments. The tax on income from interest was abolished on 1 January
1959, but the loss of this tax revenue was compensated for by a reduc-
tion in the interest rates paid by the Peoples Bank on individual sav-
ings accounts. 1-4!!,/
During 1950-59 the slaughter of seven kinds of livestock --
including hogs, lambs, and cattle -- was subject to a local tax. The
tax base was determined by state retail prices and by the actual weight
of the animal or, in areas where weighing was not possible, by a series
of standard weights. No tax was imposed on slaughter for home consump-
tion. A tax rate of 10 percent of sales value was in effect until April
1957, when the tax'rate was reduced to 8 percent. In 1957 it also was
decreed that all who paid the slaughter tax would be exempt from pay-
ment of any other business taxes, a measure applicable primarily to co-
operative and joint public-private slaughterhouses. It was said that
these changes, calculated on the basis of tax collections in 1956,
would reduce the burden of these measures by 38 percent, or 200 million
yuan, implying that in 1956 the total collection of slaughter and busi-
ness taxes on animals was approximately 526 million yuan. 49/ For
1953-56 these tax collections were said to equal 1,917 million yuan,
roughly the same order of magnitude as customs duties or salt revenues
during the same period.
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A municipal tax on land and houses was applied during 1950-59
in some 150 to 200 cities in Communist China. Permission to levy the
tax had to be obtained from the Ministry of Finance (of the central
government). Assessments and rates, and consequently tax payments,
usually remained unchanged for several years. Until 1957, tax exemp-
tion for a 2- or 3-year period was granted to newly built or newly
repaired houses belonging to state, cooperative, and joint public-
private enterprises. All title deeds involving land and houses were
subject to a local tax on the sale price, including 3 percent on mort-
gages, 6 percent on sales, and 6o percent on gifts. 22/
In 1951 a local tax was adopted for "special forms of con-
sumption" -- primarily a receipts tax of 10 to 20 percent for restau-
rants, 5 to 10 percent for hotels, and 10 to 30 percent for amusements
such as theaters, circuses, and musicals. A deduction of up to 50 per-
cent of the tax was permitted for any motion picture or drama that had
a proper political character. The tax rates were higher in large
cities and declined for successively smaller urban areas. In 1956 the
amusement tax was revised to broaden the exemptions (some newsreels
and documentary and scientific films and shows for the armed forces and
for children) and to reduce rates to a level of 2 to 25 percent. 51/
Miscellaneous fees and licenses were collected by local
government units for local purposes, including license taxes on vehicles
and vessels, judicial fees, funeral fees, various types of registration
and inspection fees, survey and construction license fees, and other
types of fees.
B. Revenue from State Enterprises
Receipts from state enterprises were the most important source
of budgetary income in Communist China. Since 1950, when they amounted
to less than 15 percent of the total, they increased at a faster rate
than over-all budget receipts and in 1959 comprised about 60 percent of
the total government income. The growth in this source of revenue was
the result of (1) the construction of new state enterprises, expansion
of existing enterprises, and acquisition of private facilities; (2) the
growth in depreciation reserves, resulting from the large increase in
physical assets; (3) the gradual reduction in some industrial costs;
and (4) the state policy of maintaining prices sufficiently high to
assure a large volume of profits.
The budget receipts from state enterprises were composed of
(1) profits, (2) depreciation reserves for amortization of fixed
assets, (3) return of surplus working capital, (4) receipts from sale
of fixed assets, and (5) income from other business activities. The
Communists have not released detailed figures for each of these com-
ponents, but profits and depreciation reserves probably accounted for
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nearly all of the total. An estimate of the distribution of budget
receipts between profits and depreciation reserves is given in Table 10.*
1. Profits
The Chinese Communists have defined profit as "the net in-
come of sales proceeds obtained according to state-regulated prices
after the deduction of production cost and tax payments." 4/ Although
they admit that this residual is frequently referred to as profit,"
they are careful to point out that it should not be confused with the
same term as used in a capitalist system. The Communists justify the
use of profits only when they serve as a source of funds for investment.
Profits of Chinese state enterprises averaged about 21 per-
cent of the value of fixed assets during 1953-58. It is estimated that
profits of industry alone in 1955 and 1956 (excluding transportation,
communications, trade, and services) represented about 28 to 30 percent
of the value of fixed industrial assets in each year. In order to
achieve this high rate of industrial profit, the Chinese followed a
different price policy from that of the USSR, which set low prices on
heavy industrial products and acquired only a small part of its invest-
ment funds from the profits of heavy industry. The Chinese, on the
other hand, priced industrial products relatively high and obtained
large industrial profits. In 1955 and 1956 the Chinese obtained more
than one-half of the funds used for economic construction from industrial
profits alone. These high industrial prices reflected the relative
scarcity of industrial goods in China, and they provided the Chinese
with a more logical valuation of industrial products in their rela-
tively underdeveloped economy than if they had followed the Soviet
policy of lower industrial prices.
a. Distribution of Profits
Almost the entire profit accumulations of state enter-
prises in 1950-59 in Communist China were remitted to the government
treasury, a practice that differed considerably from that of the USSR.
In the USSR, one part of the total net profit of an enterprise was used
for working capital and capital construction, another part was used for
employee welfare and bonus payments, and a third part was paid to the
state as a profits tax. The Chinese enterprise, by contrast, aur-
rendered all its profits, except a small bonus fund, to the treasury
and received all the funds that it needed for working capital and for
construction as appropriations from the government budget.
The initial regulation on profit distribution adopted
in Communist China in April 1951 specified that all planned profits
* Table 10 follows on p. 35.
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Table 10
Communist China: Estimated Profits and Depreciation Reserves of State Enterprises
1952-59
Million Current Yuan
1952
1953
1954
1955
1956
1957
1958
1959
Total revenue from state enterprises
5,730
7,670
9,960
11,190
13,430
14,42o
22,020
33,360
Fixed assets of state enterprises
29,600
33,350
37,960
43,74o
51,980
61,660
78,820
N.A.
Depreciation reserves
977
1,101
1,203
1,386
1,516
2,457
2,601
3,970
As a percent of the total revenue
from state enterprises
17.1 14.4 12.1 12.4 11.3 17.0 11.8 11.9
Profits
As a percent of the total revenue
4,653
6,369
8,457
9,404
11,414
11,363
18,719
28,590
from state enterprises
81.2
83.0
84.9
84.o
85.0
78.8
85.0
85.7
As a percent of the fixed assets
of state enterprises
15.7
19.1
22.3
21.5
22.0
18.4
23.7
N.A.
a. Unless otherwise indicated.
b. Profits and depreciation reserves comprise nearly all of the revenue remitted by state enterprises to the state treasury. In order to
account for the.other three items included in the total revenue from state enterprises -- return of surplus working capital, receipts from
ealeS of fixed assets, and income from other business activities -- an arbitrary amount was attributed to these items, beginning with 100 mil-
lion yuan for 1952 and increasing by annual increments of 100 million yuan to the sum of 800 million yuan for 1959. For sources and methodology,
see Appendix A.
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would go to the government but that 30 percent of profits in excess of
the plan could be retained by the enterprise as a bonus fund. In Jan-
uary 1952 this regulation was amended to establish a bonus fund for
all enterprises rather than restricting the fund to the enterprise
that exceeded its profit goal. The size of the bonus fund varied among
different branches of industry, depending on general labor conditions,
the degree of hazard involved, and other factors. In such industries
as ore mining, coal, petroleum, chemicals, ferrous and nonferrous
metals, and building construction, bonus fund deductions amounted to
5 percent of planned profit and 20 percent of the profits in excess of
the plan. In some other industries such as electrical, machine-build-
ing, shipbuilding, and some light industries, the rates were 12 and
25 percent, respectively. In any case, the total amount in the bonus
funds was not to exceed 15 percent of the annual basic wage bill. 22/
The bonus fund was used for direct bonuses to top
workers in the enterprise, for "temporary assistance" to the best
workers (not to exceed 5 percent of the bonus fund), and for improving
the cultural and living conditions of all workers (such as construction
of employee housing, hospitals, eating places, and clubs). The Chinese
described the bonus fund as an important stimulant for workers of state
enterprises because it encouraged them to reduce production costs and
increase profits. In 1957, according to "preliminary statistics,"
bonuses earned by industrial enterprises amounted to 2.8 percent of the
total amount of industrial profits.
A second category of profit distribution appeared in
1957. Reportedly, 40 to 60 percent of the profits in excess of the
plan were given to central government departments in charge of indus-
trial enterprises or to local government units, to be used as reserve
funds for production and capital construction. Both the recipients and
the purpose of this second fund were thus different from the bonus fund
that was retained by the enterprise itself. The funds acquired by
government departments from this source were said to represent 4.5 per-
cent of the total industrial profits earned in 1957.
The retention of profits as enterprise and departmental
funds was relatively minor in the years before 1958, probably averaging
less than 5 percent of the total budgetary contributions from all types
of state enterprises. Specific figures for profits retained by indus-
trial enterprises are available only for the year 1957, when 2.8 percent
of the total industrial profits was retained in the enterprise as bonus
funds and 4.5 percent was given to departments administering industrial
enterprises. Thus 7.3 percent of the total industrial profits was re-
tained in 1957, and 92.7 percent was forwarded to the central treasury.
Retained profits of state commerce and services were rarely mentioned
in the Chinese press. It is believed that the absolute amounts of bonus
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funds for industry were higher than those for commerce and services
because of the generally greater emphasis on industrial production and
because of the large number of employees in industry who would benefit
from enterprise welfare expenditures such as housing, hospitals, clubs,
and similar group activities.
In 1958 the two elements of retained profit (bonus
funds and departmental funds) were combined into a single enterprise
fund. Enterprises shared in their total net profit according to the
ratio of the following two elements: (1) the numerator was the sum of
(a) the total amount of bonus fund earned during 1953-57, (b) the share
of above-plan profit allotted to the enterprise during 1953-57, and
(c) the amount spent on four current expense items during 1953-57 (ex-
penses on technical and organizational improvements in production, on
trial production of new products, on labor protection, and on purchase
of miscellaneous fixed assets), and (2) the denominator was the total
amount of net profit reported by the enterprise during 1953-57.
The ratio of (1) to (2) above was applied against the
profit of each enterprise beginning in 1958 to determine the amount of
profit that could be retained. This ratio was to be used without change
for 5 years. It was said that in 1958 this new plan would raise to
10 percent the proportion of profit retained by the enterprises, and
if this plan of 10 percent had been fulfilled, the profit retained
by all state enterprises in that year would have been about 2 billion
yuan. It was reported, however, that the total profits actually re-
tained by state enterprises amounted to 2,970 million yuan in 1958, ap-
proximately 14 percent of the total profits earned, and to 3,999 million
yuan in 1959. Retained profit of industry was 2,181 million yuan in
1958 and 2,924 million yuan in 1959, whereas retained profit of "trade
and supply" was 443 million yuan in 1958 and 579 million yuan in 1959.
The increase in retained earnings in 1958-59 compared with previous
years is partly illusory, however, because the enterprise no longer re-
ceived direct budgetary appropriations for the four items of current
expense included in the new profit ratio. These expenses had to be
financed by the enterprise itself from its large retained profit. jjil
b. Remitting of Profits to the Treasury
Profits, as well as depreciation reserves, were remitted
to the treasury either directly by the enterprise concerned or through
the central government department that administered the enterprise. The
planned annual profit of an industrial enterprise was broken down into
monthly quotas, and 60 to 80 percent of the planned profit for a given
month was. forwarded to the government on the 25th of that month. The
balance was submitted on the 8th of the following month, with adjust-
ments made where necessary to the actual amount of profit earned. State
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trading units did not operate on this planned profit basis but con-
tributed their actual monthly profits to the treasury on the 15th of
the following month.
The responsibility for checking profit contributions
from state enterprises was delegated to the tax collection offices.
Although the tax offices did not actually receive profit contributions,
they exercised this watchdog function over profits because, it is said,
this procedure (1) lifted the burden of local government units for such
checking, (2) consolidated the supervision of the collection of taxes
and profits in one organization, and (3) prepared the tax offices to be
eventually the original repository of both taxes and profits. 22/
2. Depreciation Reserves
The Chinese Communists handled reserves for depreciation
in a manner different from the Soviet regime. Depreciation reserves
of an enterprise in the USSR were deposited in special bank accounts,
and they were used by the enterprise to offset investment expenditures
according to distributions made by the supervising agency. In China,
reserves for depreciation were paid into the central treasury and were
treated as budgetary income. Appropriations were made from the ex-
penditures side of the budget for capital investment, including all
additions to fixed assets -- both for replacements and for other pur-
poses. Some Chinese writers said that this procedure was not efficient
and that it complicated the flow of funds in both directions. The
Ministry of Finance, however, maintained that in the absence of special
banking facilities in the early 1950's to handle depreciation reserves,
it was necessary to supervise the reserve funds through the budget.
Special banks came into existence only after the Communists had been
in power in China for several years. Although it was recommended as
early as 1956 that depreciation reserves should bypass the budget and
be handled directly by the banks, no action apparently was taken to
effect the change.
Monthly depreciation charges were remitted to the treasury
(or to the government department that supervised the enterprise) on the
15th of the following month. The actual amount of the depreciation
charge was determined by the enterprise according to recommended
amortization schedules. A separate charge for major repairs of capital
assets was handled by the enterprise itself in a special bank account
that did not go through the budget.
Depreciation reserves over the past 10 years far exceeded
the outward flow of budget expenditures for the replacement of fixed
assets actually scrapped.. A great deal of the modern industry of Com-
munist China was put in place during 1952-59. Much of this industrial
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equipment was still relatively new, and the Chinese system tended to
continue the use of older equipment that in Western countries would
be considered obsolescent. For these reasons, replacement expenditures
were small. As a proportion of total budgetary income, depreciation
reserves increased from about 5.6 percent in 1952 to about 7.3 percent
in 1959 and represented more than 6 percent of budgetary revenue over
the entire period. With replacement expenditures relatively low during
these years, most of these funds were available for allocation as the
state investment plan dictated. As long as rates of depreciation are
relatively consistent from year to year and as long as net investment
is positive, depreciation reserves will continue to serve as an impor-
tant source of funds for state investment rather than as a commitment
from the budget to remit funds to the specific enterprises making de-
preciation payments.
3. Other Budget Revenue from State Enterprises
Compared with profits and depreciation reserves, other bud-
get revenue from state operations in Communist China was unimportant.
This other revenue consisted of three elements.
a. "Return of Surplus Working Capital"
This revenue probably was small and conceivably may
have been negative in some years. Each enterprise returned any surplus
working capital to the government department to which it was subordinate,
and this department in turn distributed the surplus to meet the deficits
in working capital of other enterprises under its control. Only after
this balancing had taken place was any net surplus of working capital
returned to the treasury.
b. "Receipts from the Sale of Fixed Assets"
This revenue arose from the disposition by industrial
enterprises of fully depreciated or other dispensable assets. In view
of the relatively recent expansion of Chinese industry, a great deal
of the industrial equipment was not yet fully amortized or obsolete,
and budgetary revenue from this source probably was negligible.
c. "Income from Other Business Activities"
This revenue consisted of sales proceeds from experi-
mental products of research agencies, the income of broadcasting and
news services (likely to be insignificant in view of the complete
absence of advertising revenues), and the income of surveying and
planning activities.
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C. Other Budget Revenue
Miscellaneous sources of government income in CoMmunist China
were relatively unimportant and declined as a proportion of the total
revenue during the past 10 years. Sources of income other than taxes
and receipts from state enterprises represented 11.5 percent of the
total budgetary revenue in 1950 but only 2.7 percent in 1958 and 0.6
percent in 1959. These other sources of revenue- consisted of loans
from abroad, domestic bond sales to the public, earnings of government
Insurance operations, and miscellaneous items such as fines, adminis-
trative and service fees, and supplementary income from various public
projects.
1. Domestic Bonds
The Chinese Communists had six national domestic bond
Issues during 1950-58, providing revenue of 3,762 million yuan (about
1.8 percent of the total budgetary income during that period). The
first of these was the Peoples Victory Bond of 1950. From 1954 through
1957, National Economic Construction Bonds were issued each year in
the planned amounts of 600 million yuan annually. The planned amount
of National Economic Construction Bonds for 1958 was 625 million yuan.
All of these issues, except that of 1950, were oversubscribed. Begin-
ning in 1959, national bonds were discontinued, and local governments
were authorized for the first time to issue local government bonds.
The distribution of bonds among various sections of the population is
shown in Table 11.* .1Y
The largest amounts of bonds were sold to people with the
largest cash incomes -- wage earners and private businessmen. These
two groups, representing 5 percent of the total Chinese population,
bought 68 percent of the bonds sold during 1950-57. The share of pri-
vate businessmen in the total bond sales declined from 71 percent in
1950 to only 12.5 percent in 1957. During this period, private indus-
try and commerce were almost completely absorbed by the state. The
large increase in the number of state employees resulted in a rise in
their share of actual bond sales from 11.5 percent of the total in
1950 to 40 percent in 1957. State employees apparently exceeded their
quotas in nearly every year. Sales to the agricultural sector in-
creased from 1950 to 1954 almost sevenfold, probably an adjustment from
a low initial share, but then remained almost unchanged through 1956.
The peasants failed to meet their annual quotas in 3 out of 4 years.
The Chinese stated that sales to state employees in 1955 represented
slightly more than 7 yuan per capita, whereas sales to the peasants,
largely a nonmonetary sector of the economy, were only about one-half
yuan per capita.
* Table 11 follows on p. 41.
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Table 11
Communist China: Distribution of Domestic Bonds
1950-58
Million Current Yuan
1954 1955 1956 1957
Private industry and commerce III
Peasants 1)./
State employees si
All others LI/
Total
1950
Actual
Sales
Planned
Sales
Actual
Sales
184
18
30
28
260
320
180
-100
600
394
140
246
56
836
1958
Planned Actual Planned Actual Planned Actual Actual
Sales Sales Sales Sales Sales Sales Sales
270
180
-450
600
244
140
139
75
81
135
190
138
200
217
320
195
230
244
280
260
45
40
86
45
92
N.A.
619
600
607
600
65o
790
a. After 1955, when nearly all industry and commerce had become socialized, this category represented former private businessmen receiving "fixed
dividends" on the assets that they had contributed to joint state-private enterprises plus some 3 million small traders and peddlers throughout
the country.
b. This category represents the rural (farm) areas.
c. The category "state employees" includes industrial and commercial workers employed by state enterprises and working personnel of government
administrative organs and cultural and educational agencies.
d. The category all others" includes the armed forces and the urban population not otherwise accounted for.
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The Peoples Victory Bond in 1950 provided 4 percent of the
budgetary revenue in that year. The bonds were normally scheduled to
mature in 5 years, but a drawing for partial redemption was held each
year after issue except the last. The last payments on these bonds
were to begin on 31 March 1955, with the redemption privilege to expire
6 months later. Two extensions of this deadline were necessary, how-
ever, which extended the redemption period from 6 to 14 months. The
official announcements said that these extensions were required because
the Chinese people were unaccustomed to holding bonds and were not aware
that they must be redeemed within a fixed period. Furthermore, the
remoteness of some bondholders from banks where the bonds could be cashed
made redemption difficult. .22/ These statements imply that the Com-
munists achieved a relatively wide distribution with their first bond
Issue. In view of the traditional Chinese distrust of paper claims to
wealth, it is probable that at least some of the 1950 bonds were pur-
chased under duress. The 1950 bond issue, unlike all succeeding issues,
probably was undersubscribed.
The National Economic Construction Bonds issued each year
from 1954 through 1958 are nearly identical in their terms. They all
carried a 10-year normal maturity, except the 1954 series, which was
for 8 years. The bonds were issued in denominations of 1, 2, 5, 10,
50, and 100 yuan. They carried interest at the rate of 4 percent pay-
able once a year, usually on 30 September. Interest coupons attached
to the bonds were redeemable on the specified date at all branches of
the state bank.
The bond issues during 1954-58 provided for redemption
based on a lottery-type drawing. The 1957 series, for example, was to
be repaid by 10 annual drawings. On each of the first, second, third,
and fourth drawings, 5 percent of the total outstanding bonds was to be
repaid; on each of the fifth, sixth, and seventh drawings, 10 percent of
the total was to be repaid; on each of the eighth and ninth drawings,
15 percent was to be repaid; and in the tenth year the remaining 20 per-
cent was to be repaid. Each annual drawing normally was made in August,
and the last two digits of a bond's serial number had to correspond with
the drawn numbers in order to make the bond eligible for redemption.
The bonds were redeemable in the last quarter of the year, and if they
were not cashed at that time, they could be turned in during the redemp-
tion period of the following year.
The Chinese Communists gave no reason for dropping National
Economic Construction Bonds in 1959. The receipts from bond sales in
1958 represented less than 2 percent of the total budgetary income,
and the regime may have decided that the relatively low return did not
justify the administrative effort involved in issuing these complicated,
small-denomination bonds, which required an extensive sales campaign,
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arrangements for installment payments, annual interest payments, and
annual redemptions of principal. These administrative details multi-
plied with each successive issue. In 1958, for example/ the authorities
not only had to conduct the subscription and payment drives for that
year's issue but also were required to make interest payments and prin-
cipal redemptions (many of them very small) on the bond issues of 1954,
1955/ 1956, and 1957.
The decision to permit local governments to issue shorter
term local government bonds in place of the national bonds may have
been part of the general movement in 1958 to delegate more economic
and administrative authority to the provinces. Most of the provinces,
however, decided not to issue bonds in 1959. A typical provincial bond
in 1959 was the one issued by Anhwei Province, carrying simple interest
of 1 percent per year and maturing in 5 years. Although the planned
amount of this bond issue was 67 million yuan, only 25,280,000 yuan of
the issue was sold. The planned bond issue in Anhwei Province for 1961
was only 29,200,000 yuan. 22/
2. Loans from Abroad
The Chinese Communists received a total of 5,294 million
yuan in loans from the USSR during 1950-59. About one-third of this
total was in the form of economic assistance. The remainder was not
specifically identified but probably was for military assistance.
The USSR extended a credit valued at $300 million to Com-
munist China in 1950 at an interest rate of 1 percent. This loan was
to be used over a 5-year period ending in 1954, with repayments in 10
equal installments beginning no later than 31 December 1954. Although
the Chinese stated that this loan was to be made available in cash,
apparently it was used for the most part to purchase industrial equip-
ment and materials from the USSR. A second loan of 520 million rubles
(about $130 million) for the purchase of economic goods was made by the
USSR to China in 1954. These two loans were widely publicized in the
Chinese press as economic credits. All other loans from the USSR,
most of which have not been clearly identified, were reported in terms
of yuan and usually were announced only as part of the budgetary re-
ceipts of the government.
The annual receipts of credit from the USSR and their rela-
tive importance in the Chinese budget are indicated in Table 12.* _?.2/
Credits from the USSR apparently were exhausted in 1957/
for budgets for subsequent years do not indicate any receipts from this
* Table 12 follows on p. 44.
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Table 12
Communist China: Receipts of Credit from the USSR
1950-57
Year
Receipts of Credit
(Million Current Yuan)
Receipts of Credit
as a Percentage
of Total Budgetary
Revenue
1950
1951
1952
244
625
1,305
3.7
4.8
7.4
Total,
1950-52
2,174
1953
438
2.0
1954
884
3.4
1955
1,657
6.1
1956
117.4
o.4
1957
23.2
0.1
Total,
1953-57
3,120
Total,
1950-57
,5,294
a. The Chinese Communists reported that the total amount of loans
received from the USSR was 2,174 million yuan for 1950-52; the
allocations in this table by individual years for this period are
estimated from budget figures. The Chinese reported the amount of
loans from the USSR in each year for 1953-57.
source. It was logical for the Chinese Communists to carry these for-
eign credits as regular budgetary receipts. The expenditure of these
sums, whether for economic construction or military purposes, was con-
fined entirely to the state sector of the economy and was directly
related to budgetary appropriations for specific purposes.
3. Income from Insurance Operations*
The Communists have brought all insurance activities in
China under state control.' Compulsory insurance has been enforced by
the National Peoples Insurance Corporation on all state-operated enter-
prises, on cooperatives, and on passengers and communications. In both
*
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rural and urban areas, various types of voluntary insurance have been
promoted, such as life and personal accident insurance and crop and
fire insurance. In more recent years, efforts have been made to ex-
pand insurance coverage in rural areas.
The premiums contributed to the sa-called "national insur-
ance fund" (apparently administered by the National Peoples Insurance
Corporation) are reported to be based on actuarial principles. In
addition to the primary function of indemnity against loss, however,
the Chinese have said that insurance premiums also are used for the
following purposes: (a) to help finance projects that will prevent
accidents or loss, (b) to supplement the government budget in the form
of periodic contributions, and (c) to contribute to loanable funds of
the state banking system.
The nature of contributions by the insurance system to the
budget is not clear. Budget revenue may simply be the total income
from premiums after-payments of claims, although in this case insurance
would not add to the loanable funds of the State Bank as indicated
above. Budget revenue, on the other hand, may consist of the profits
of state insurance companies, although profits of state enterprises
normally are contributed to the budget under the revenue category "In-
come from State-Operated Enterprises and Operations." The most likely
possibility is that in any one year some part of insurance reserves is
considered in excess of the reserve required on normal actuarial prin-
ciples and that this amount is remitted as budget income.
Insurance contributions to the government can be estimated
only as a residual because no direct figures are available. The budget
revenue category "Credit Loans and Insurance" is known to include re-
ceipts from foreign loans and domestic bond sales as well as insurance
contributions. Insurance contributions are estimated in Table 13* as
a residual after deducting from this revenue account income from
"domestic bonds" and "foreign credits."
* Table 13 follows on p. 46.
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Table 13
Communist China: Estimated Budgetary Receipts from State Insurance Operations
1953-58
Million Current Yuan
Income from credit loans
1953
1954
1955
1956
1957
1958
and insurance
490
1,790
2,360
724
700
800
Less income from foreign credits
438
884
1,657
117
23
o
52
906
703
607
677
800
Less income from domestic bonds
0
836
619
607
650
790
Residual (primarily insurance
receipts)
52
70
84
010
.
.
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III. Tax Burden
Available evidence on taxes and income in Communist China indicates
that money taxes on consumer expenditures were about one-third of con-
sumer money income and about one-fourth of the total consumer income
in 1958-59. In relation to the very low per capita income in China,
the proportion of income going to taxes is extremely high. This quan-
titative measure of the tax burden must be modified, however, by other
factors that may increase or reduce its impact on the taxpayer. Actual
conditions in China make the final impact of taxes lighter than sta-
tistical evidence alone would indicate. For example, the real impact
of a high proportion of taxes in China was minimized during 1950-59
by gradual increases in real income, and the psychological impact was
lessened by building the tax system largely around indirect, rather
than direct, taxes. Furthermore, taxes were only one of the control
mechanisms used by the Communists to restrict the real income and ex-
penditures of the consumer. The average Chinese taxpayer probably was
as much concerned about wages and prices, both directly controlled by
the state, as he was about tax burdens.
Major difficulties are encountered in estimating the tax burden in
Communist China. First, gaps in the data on Chinese taxes make it
necessary to estimate by indirect methods the magnitude of several
taxes, and this procedure affects the precision of the statistical
measure of the tax burden. Second, the difficulties encountered in
evaluating the final impact of taxes in any country -- such as evaluat-
ing the relative burdens among different groups of the population,
assessing the social costs of an increasing tax burden, and allowing
for the psychological impact of taxes -- appear to be even more formi-
dable in the case of China. The historical attitude toward taxes is
greatly different in China from that in the West; the Chinese people
under the present regime are unable to offer effective opposition or
even comment in public on the tax load; and the regime is attempting
to justify the current personal sacrifices (including the tax load)
with the promise that these sacrifices will make China a great indus-
trial nation. These nonmonetary or psychological factors bearing on
the impact of taxes cannot be adequately measured, but their influence
should be noted as a broad qualification to the estimated burden of
taxes.
A. Statistical Evidence of the Tax Burden
In a rapidly developing country with a very low per capita
income such as Communist China, nearly every yuan spent for industrial
investment is a yuan that cannot be spent for basic consumption needs.
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All resources allocated to heavy industry leave unsatisfied, at least
for the present, the improvements in living standards sought by all
underdeveloped countries, such as a more adequate diet, clothing, and
shelter. In this sense, in the absence of external financing, the
entire burden of industrialization falls ultimately on the household
consumer. In 1959, China devoted nearly one-third of its GNP to in-
vestment, a proportion that indicates in a general way the sacrifice
required of a population whose per capita GNP in 1959 was only 226 yuan
(about $92 at the official rate of exchange). A more direct and defini-
tive measure of the tax burden, however, is limited to the consumer
sector of the economy and in particular to economic activities using
money as the medium of exchange. For this purpose, the following two
time series may be derived: (1) consumer money income and (2) consumer
money taxes. The average rate of taxation -- the ratio of (2) to (1) --
is a quantitative measure of the burden of money taxation. The total
money taxes also are compared with the total consumer money income to
give further indication of the trend of money taxes.
1. Average Money Tax Rate
In computing the burden of money taxes in Communist China,
it was necessary to estimate both consumer money income and consumer
money taxes. The former could be derived either through the income
side or through the expenditure side of the consumer money sector. The
data for consumer expenditures that were adequate for this purpose
covered a longer time span than those for consumer income. The largest
item of consumer expenditures is retail sales, constituting 85 percent
or more of the estimated total money expenditures each year, and fig-
ures for retail sales to consumers are readily available for the entire
period 1950-59. In Table 14,* consumer money income is estimated from
data on retail sales, bond purchases, union dues, increments in personal
bank deposits, and direct taxes. Figures for the total money taxes were
derived from official sources and represented about three-fourths of
the total government revenues. In analyzing the tax burden, the profits
remitted to the treasury by state enterprises were considered to be
taxes. State enterprises in China were not subject to a tax as such on
their net operating income, but the profits that they forwarded to the
treasury according to a monthly plan represented a form of tax on net
income.** The items of budgetary revenue that were excluded from money
* Table 14 follows on p. 49.
** Profits of state enterprises were relatively high in Communist China
compared with the USSR because the Chinese priced the products of heavy
industry higher (relative to other goods) than did the Soviet government.
The large absolute profits of state enterprises in China represented very
high returns to capital, but this high rate of return was a direct result
of the Chinese policy of high industrial prices. These profits also
might have been considered as a capital Zfootnote continued on p. 527
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Table 14
Communist China: Estimated Consumer Money Income 2/
1950-59
Million Current Yuan
Allocations
of Consumer Money Income
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
Adjusted retail trade
16,360
22,030
25,280
30,150
33,310
35,620
42,400
44,720
51,800
60,300
Purchase of consumer services
1,895
2,550
2,605
3,100
3,690
3,995
4,550
5,045
5,535
6,444
Purchase of government bonds
260
0
0
0
836
.619
607
650
790
4o
Trade union dues
28
57
70
91
98
102
148
156
192
195
Increments in personal bank
deposits
122
412
299
364
198
287
542
557
2,300
3,630
Direct taxes on consumers
281
467
510
601
538
465
467
377
426
43o
Total
18,946
25,516
28,761-1-
34 306
38,670
41 o88
48,714
51,505
61,0113
71,039
a. For sources and methodology, see Appendix A.
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taxes in Table 15* are depreciation allowances and other nonprofit
remittances of state enterprises, receipts from foreign loans, re-
ceipts from state insurance operations, receipts from the sale of
domestic bonds, agricultural taxes paid in kind rather than in cash,
and miscellaneous receipts such as income from public property and
various special sales.
The proportion of total money taxes borne by household
consumers had to be estimated from the limited data given by the Chinese
Communists. Some levies, such as the salt tax, fell almost entirely on
the consumer. Other levies, such as customs duties, are borne only in
part by the consumer. Only approximate estimates could be made of the
proportions of commodity taxes and of profits taxes that were shifted
forward to become part of retail prices of consumer goods or of the
proportion of profits taxes that was shifted backward to consumers in
the form of lower wage payments and lower farm income.
The procedure for estimating consumer money taxes was to
attribute to the consumer tax load none of the profit remittances of
heavy industry, three-fourths of those from light industry, and one-
half of profits from foreign trade and rail transportation. Profits
of heavy industry and of light industry each contributed about 35 per-
cent of the total profits of state enterprises, and foreign trade and
transportation contributed the remaining 30 percent. Commodity taxes
borne by consumers were estimated separately for the retail and for the
manufacturing and wholesale levels. Estimates of consumer money taxes
are shown in Table 16.**
The average rates of money taxation in Communist China,
derived from data in Tables 14,*** 15, and 16, are shown in Table 17.t
Series 1, which gives the total money taxes as a percentage of consumer
money income, does not measure the burden of money taxes on consumers,
because it includes taxes not paid by consumers. This series does
transfer to the central treasury or as business savings (although these
funds differed from the usual concept of business savings in that no
dividends were paid and individuals had no claim on the future earnings
of state enterprises). For the purposes of this report, profits of
state enterprises were treated as a tax because they had to be remitted
to the central treasury according to specific regulations and because
the funds were entered into the revenue side of the government budget
and were concurrently allocated through the expenditure side of the
budget.
Table 15 follows on p. 51.
** Table 16 follows on p. 52.
*** P. 49, above.
t Table 17 follows on p. 53.
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Table 15
Communist China: Total Money Taxes
1950-59
Million Current Yuan
Money Taxes
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
Salt taxes
268
339
405
461
521
481
483
620
620
650
Customs receipts
356
693
481
505
412
466
542
460
580
650
Direct taxes on consumers
281
467
510
601
538
465
467
377
426
430
Industrial and commercial taxes
2,363
4,745
6,147
8,250
8,972
8,725
10,098
11,300
14,179
15,698
Profits of state enterprises
770
2,690
4,653
6,369
8,457
9,404
11,414
11,363
18,719
28,590
Total
+,038
8,934
12,196
16,186
18,900
19,5)41
23,00)4
2)4,120
3)4,52)4
)46,0l8
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Table 16
Communist China: Estimated Consumer Money Taxes a/
1950-59
Million Current Yuan
Consumer Money Taxes
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
Direct taxes on consumers
281
467
510
601
538
465
467
377
426
430
Salt taxes
268
339
405
461
521
481
483
620
620
650
Customs receipts (adjusted)
178
347
241
253
206
233
271
230
290
325
Retail commodity taxes
982
1,322
1,155
1,412
1,695
1,811
2,168
2,478
2,927
3,618
Retail profit taxes
242
388
708
944
1,579
1,590
2,264
2,346
3,057
4,824
Industrial commodity taxes12/
947
2,488
3,671
5,070
5,400
5,193
5,711
6,359
7,689
8,533
Industrial profit taxes12/
402
905
1,433
1,913
2,244
2,564
3,072
3,057
3,983
5,428
Total
3,300
6,256
8,123
10 654
12,183
12,337
14 436
15,-4.67
18,992
23,808
a. For sources and methodology, see Appendix A.
b. Including transportation and foreign trade.
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Table 17
Communist China: Average Rate of Money Taxation
1950-59
Percent of Consumer Money Income
Year
Total Money Taxes
(Series 1)
Consumer Money Taxes
(Series 2)
1950
21.3
17.4
1951
35.0
24.5
1952
42.4
28.2
1953
47.2
31.1
1954
48.9
31.5
1955
47.6
30.0
1956
47.2
29.6
1957
46.8
30.0
1958
56.6
31.1
1959
64.8
33.5
provide, however, an indication of the trend of the total money taxes
collected in Communist China. Series 2 represents money taxes paid
directly or indirectly by consumers as a percent of consumer money in-
come and is therefore an estimate of the budget "burden" on household
consumers in China. These percentages represent a minimum estimate of
the money tax burden because they do not include the possible effects
of shifting (a) profits of heavy industry backward in the form of lower
money wages and (b) profits of the state procurement network backward
in the form of lower farm procurement prices.
In spite of the limitations of the data on taxes and income
in Communist China during the period, several conclusions may be drawn
from Table 17. Consumer money taxes as a percent of consumer money
income increased sharply from 1950 to 1953 -- from 17.4 to 31.1 percent
(Series 2, Table 17). Although consumer money income increased during
1950-53, consumer money taxes increased much faster, representing a
relative increase in the burden on consumer expenditures as the Commu-
nist regime consolidated its control over China and prepared for the
industrialization drive of the First Five Year Plan (1953-57). After
1953, money taxes represented from one-fourth to one-third of consumer
money income each year.
The ratio of the total money taxes (Series 1, Table 17) to
consumer money income also increased during 1950-54. From 1955 through
1957, this ratio declined each year, indicating a higher rate of growth
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in consumer money income than in the total money taxes in this period.
The ratio in Series 2 increased in 1957, however, implying that con-
sumer money taxes increased more rapidly than both consumer money in-
come and total money taxes.
Consumer money income and taxes also may be related by
comparing changes in their respective magnitudes from year to year.
Annual changes in consumer money taxes and in consumer money income
(before and after taxes and corrected for changes in population and
in retail prices) are shown in Table 18.*
The figures in Table 18 illustrate the higher rate of
Increase in consumer money taxes than in consumer money income in
Communist China during most of the period 1950-59. In each of the
years 1950-54, income after taxes increased less than income before
taxes, because money taxes each year increased more than money income.
This pattern was repeated in the period 1957-59. Personal taxes may
be expected to increase faster than personal income when a tax structure
Is progressive. The tax structure in China for most of this period,
however, probably was proportional or mildly regressive and would not
have caused the proportionately larger increase in taxes than in income.
Money taxes, therefore, probably increased faster than money income
for reasons such as the following: (a) the inclusion of more taxable
items in consumer expenditures (some consumer goods were taxed for the
first time in various years during 1950-59); (b) large increases in
the annual profits tax of state enterprises, with a substantial though
declining proportion of this profits tax passed on to consumers; (c) a
shift in consumer purchases to higher taxed goods such as from food
to textiles and from necessities to tobacco and seniluxuries, concomi-
tant with the increase in consumer income; and (d) increases in com-
modity tax rates on consumer goods (the tax rates available for this
period indicated only minor increases).
The last column in Table 18 indicates that consumer money
income per capita (after taxes and corrected for changes in retail
prices) increased in every year except 1957. A part of the annual,
additions to consumer money income during 1950-59 was accounted for
by the shift in large numbers of people from rural areas (where per
capita money income was relatively low) to the urban labor force (where
per capita money income was higher). This factor may account for about
one-third of the increase in consumer money income (in current prices)
that occurred from 1953 to 1959.
Table 18 follows on p. 55.
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Table 18
Communist China: Indexes of Consumer Money Income and Taxes Lti
1951-59
Previous Year = 100
(1)
(2)
(3)
(10
(5)
Year
Consumer
Money Income
Before Taxes
Consumer
Money Taxes
Consumer
Money Income
After Taxes
Consumer
Money Income
After Taxes Corrected
for Price Changes
Per Capita
Money Income
After Taxes Corrected
for Price Changes
1951
134.7
189.6
123.1
1952
112.7
129.8
107.2
107.3
105.2
1953
119.3
131.2
114.6
110.1
107.4
1954
112.7
114.4
112.0
108.9
106.7
1955
106.3
101.3
108.5
107.6
105.0
1956
118.6
117.0
119.2
119.2
116.2
1957
105.7
107.1
105.1
102.3
100.0
1958
118.5
122.8
116.7
117.2
114.2
1959
116.4
125.4
112.3
111.9
109.1
a. For sources and methodology, see Appendix A.
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Tables 14* and 16** imply that increases in retail prices
during 1951-59 were caused by increases in commodity taxes. These
tables also imply that the cost of goods sold at retail (minus all
taxes) declined during this period. The pressure of taxes on retail
prices may be illustrated by assuming that a rise in the retail price
level will occur when consumer tax collections in a given year in-
crease proportionately more than retail sales. The increase in the
retail price level should be at least as great as the extra-proportionate
Increase in commodity taxes collected. Otherwise it may be assumed that
the cost of goods sold at retail (minus all taxes) declined sufficiently
to absorb the extra increase in taxes. Table 19 is a comparison of
(a) the increase in retail prices that should have occurred because
tax collections increased proportionately more than retail sales and
(b) the annual changes in the retail price index.
Table 19
Communist China: Effect of Tax Increases on Retail Prices 21
1952-59
Year
Change in Retail Prices Suggested
by Change in Tax Collections
Change in
Official Retail
Price Index
1952
5.2
-0.1
1953
4.6
3.2
1954
2.4
2.2
1955
-2.5
0.8
1956
-0.6
o
1957
1.2
2.2
1958
3.2
-0.3
1959
4.6
o
a. For sources and methodology, see Appendix A.
In 1952 the more-than-proportionate increase in tax col-
lections should have caused retail prices to increase about 5.2 per-
cent, whereas the official price index declined by one-tenth of 1 per-
cent. In 1958, increased taxes implied an increase in retail prices
of 3.2 percent, whereas the official index showed a decline of three-
tenths of 1 percent. Significant differences between the two indexes
in Table 19 also occurred in 1953, 1955, and 1959. In the years
* P. 49, above.
** P. 52, above.
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1953-54, when retail prices increased by more than 2 percent, the extra-
proportionate tax collections were sufficient to have been the sole .
causal factor.
The cumulative increase in extra-proportionate taxes during
1951-59 (column 1 of Table 19) amounted to 18.1 percent, whereas the
cumulative increase in retail prices (column 2 of Table 19) was only
8.0 percent. If the value of retail sales had absorbed the increase
of 18.1 percent in taxes, it would have been necessary (a) for retail
prices to increase by 18.1 percent (considerably more than the 8.0 per-
cent officially reported for retail prices), or (b) for the cost of
goods sold at retail to be reduced to absorb the tax increase, or
(c) for a combination of (a) and (b) to occur. The data suggest that
Only part of the extra-proportionate increase in tax collections during
1951-59 was accounted for by the increase in retail prices and that some
reduction in the cost of goods sold at retail may have occurred.
2. Comparison with Tax Burdens in Other Countries'
The monetary measure of the tax burden in Communist China
may be compared in a general way with the tax burden in other countries,
although the variation in tax burdens among various countries is more
complex than a quantitative comparison alone would indicate. Further-
more, even the official data on taxes and income are seldom fully
comparable from one country to another. These limitations qualify the
direct comparisons in Tables 20 and 21,* and the figures given in
these tables therefore indicate only the approximate relative tax bur-
dens.
If the total government tax collections were related to
national income, Communist China in 1950-59 was in a position roughly
comparable to industrial nations in the West and considerably above
India (and, after 1955, even Japan), as indicated in Table 20.
The figures for Communist China in Table 20, however,
should be reduced -- probably by as Much as one-third -- to make them
comparable with figures for the other countries. About three-fourths
of Chinese gross domestic investment in 1959 was channeled through the
government budget, whereas in the other countries a much smaller pro-
portion of the total domestic investment was reflected in government
accounts. A better international comparison of the tax burden may be
derived by comparing consumer money taxes and consumer money income.
This comparison is made for several countries in Table 21.
* Tables 20 and 21 follow on p. 58.
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Table 20
Ratio of Government Tax Collections to National Income
by Selected Countries
1950 and 1955-59
Percent
Year
Communist
China
Japan
India
UK
West
2sIrmax
France
US
1950
15.2
22.4
5.5
38.1
25.3
20.7
27.2
1955
32.2
19.7
5.5
33.3
28.3
21.4
28.7
1956
29.5
20.4
6.6
33.4
28.1
21.9
29.2
1957
29.7
21.2
6.8
32.5
27.1
23.5
27.6
1958
33.4
20.5
8.1
32.7
26.9
24.7
27.5
1959
39.0
19.9
7.7
N.A.
N.A.
N.A.
27.3
Table 21
Communist China, USSR, US: Average Rate of Consumer Money Taxation
and Personal Money Income Per Capita 21
Selected Years, 1951-59
Communist China
USSR US
Year
Tax Rate
(Percent)
Income
(US $)
Tax Rate
(Percent)
Income
(JS $)
Tax Rate
(Percent)
Income
(US $)
1951
24.5
19
53.4
275
29.7
1,560
1952
28.2
21
53.1
280
30.8
1,625
1953
31.1
24
49.3
290
30.4
1,730
1957
30.0
33
N.A.
N.A.
30.9
1,965
1958
31.1
38
N.A.
N.A.
29.7
1,980
1959
33.5
43
N.A.
N.A.
30.3
2,065
a. For sources and methodology, see Appendix Al-
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Although money taxes as a percent of money income are
roughly comparable in Communist China and the US, the differences in
per capita money income are so large that the tax "burden" appears
to be much greater in China than in the US. This comparison, however,
does not take into account such other factors affecting the impact
of taxes as (a) nonmonetary income, (b) the structure of taxes, and
(c) the composition of public expenditures (see the discussion in B,
below). The average rate of the money tax in the USSR in 1951-53 was
about 60 percent higher than in China in 1958-59, but the much higher
per capita money income in the USSR could support a larger proportion
of money taxes.
The average rate of the total money taxes (total money
taxes as a percent of consumer money income) followed a pattern in
Communist China somewhat similar to that in the USSR. The ratio of
the total money taxes to consumer money income was 36 percent in the
USSR in 1926 and 35 percent in China in 1951, and these ratios had
increased to 72.2 percent in the USSR by 1947 and to 64.8 percent in
China by 1959.
B. Impact of the Tax Burden
The tax burden, even in Communist China, is a highly subjective
matter. Individuals hold their own particular attitudes toward taxes,
and generalizations are inadequate to evaluate definitively the personal
impact of taxes. For example, in China as elsewhere, different taxes
probably have different effects on individual incentives to work and
to save, and these effects may be self-canceling with respect to some
groups or individuals and cumulative with respect to others. These
personal attitudes and reactions can be uncovered only through sample
surveys, however, and must be largely ignored in the case of Communist
China. This discussion is limited, therefore, to criteria of a more
general application, which can be used in evaluating the over-all impact
of taxes.
1. Effect of the Structure of Taxes
The psychological impact of taxes depends to a great extent
on the form in which they are levied. Indirect taxes often go un-
noticed, whereas direct taxes meet strong objections from taxpayers.
For example, the levy that becomes a part of.commodity price is much
less likely to be identified as a tax than the same levy imposed on
individual income. A tax structure that concentrates on indirect
levies, therefore, is more likely to hide the real burden of taxes
than one which relies heavily on direct taxes. The only direct taxes
on the consumer in Communist China are the agricultural tax and miscel-
laneous fees and fines. In 1950 the Chinese depended on indirect levies
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for two-fifths of consumer tax payments, and thereafter the proportion
of indirect taxes rose nearly every year, until by 1959 they accounted
for almost all of the total. The relative positions of direct and
indirect taxes paid by Chinese consumers are Shown in Table 22.
Table 22
Communist China: Percentage Shares of Direct and Indirect Taxes
in Total Money Taxes Paid by Consumers
1950-59
Percent
Year
Direct Taxes
Indirect Taxes
1950
60
11.0
1951
38
62
1952
39
61
1953
30
70
1954
31
69
1955
26
74
1956
21
79
1957
19
81
1958
2
98
1959
1
99
The sharp increase during 1950-53 in indirect taxes (from
4o to 70 percent) coincided with a big rise in the proportion of con-
sumer money income taken by taxes (from 17.4 to 31.1 percent). This
emphasis on indirect taxes at a time when money tax collections were
greatly increased probably softened the impact of the enlarged tax
burden. During this period (1950-53) the Chinese Communist regime
was consolidating its economic and political control over the mainland
and could most easily administer taxes levied against business enter-
prises. In addition, it had good reason to hide as much as possible
of the very large increase in the consumer tax burden. These consid-
erations probably led to the decision to impose high commodity taxes
and to postpone indefinitely the individual income tax (the latter
had still not been implemented by 1959 in spite of the fact that it
was included in the initial tax program of 1950). With this structure
of taxes, the average Chinese worker or peasant probably was not aware
that an increasing share of consumer money income was drained off into
the central treasury.
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2. Effect of the Level of Income
The level of personal income greatly influences the impact
of a given tax load. An average tax rate of 25 percent may be a severe
burden to the members of a subsistence economy but of relatively minor
consequence to those of an affluent one. In spite of the approximate
equality in average money tax rates for Communist China and the US,
the great disparity in real per capita income between the two countries
implies a much greater psychological impact for the Chinese than for
the US taxpayer.
There is no indication that the impact of the tax burden in
Communist China has declined as a result of changes in taxes or income
during 1950-59. Personal money income per capita (in real terms) in-
creased only moderately during this period. In view of the small in-
come changes and the already low level of absolute income per capita,
the ability of the Chinese to pay taxes probably increased very little.
Moreover, money taxes increased at a faster rate than money income or
than per capita income (in real terms) in nearly all of these years.
3. Effect of Public Expenditures
In evaluating the impact of taxes, particularly where the
tax burden is high in relation to personal income, it is essential
to consider the composition of public expenditures. If most of the
tax revenues are used to benefit the consumer directly -- as, for
example, through expenditure on public housing, education, health, and
other social services -- the real tax burden will be much less, at
least in the short run, than if most of the tax revenues are used to
finance foreign aid, defense, research, and long-term investment.
The drive for industrialization in Communist China during
1950-59 largely determined its pattern of expenditures, and budget
appropriations for the consumer were relatively small. In each year
since 1952 the shares of government expenditure on both economic
construction and national defense exceeded those for social services
(including education). The absolute expenditures on social services
ranged from only 10 to 15 percent of the total, although they provided
improvements in health and education. The nature of public expendi-
tures, therefore, appears to have done little to mitigate the impact
of a high tax burden in China. The Chinese Communists claimed, how-
ever, that in the long run the consumer would reap immense gains from
the program of industrialization.
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4. Effect of Nonmonetary Income
The tax burden in Communist China has been defined conven-
tionally in this report as the ratio of personal money taxes to per-
sonal money income. This measure of the tax burden is reduced somewhat
if nonmonetary income is included in personal income. Urban residents
in China probably received most of their income in cash, but in 1950-59,
85 percent of the total population lived in rural areas, where a
larger share of personal income was received in kind rather than in
cash. It is estimated that for rural and urban consumers together,
personal money income as a percent of the total personal income was
about 52 percent in 1950, 57 percent in 1953, 67 percent in 1957, and
78 percent in 1959. If money taxes paid by consumers were related to
their total personal income rather than to personal money income, the
tax burden would be reduced from 17 percent to 9 percent for 1950,
from 31 percent to 18 percent for 1953, from 30 percent to 20 percent
for 1957, and from 34 percent to 26 percent for 1959. Although the
tax burden in terms of total rather than money income is considerably
smaller for the early 1950's it was not substantially different in
1959.
5. Factors Peculiar to China
There were some considerations unique in the Chinese
environment that affected the attitudes of the people toward taxes.
Taken separately, these factors probably had varying influences on
different segments and individuals in the population. They cannot be
given specific weights in evaluating the impact of taxes, but they
suggest that the preoccupation with taxes in Communist China may not
be as great as in many Western countries.
a. Heavy taxes in relation to very low per capita
incomes were not new in China. The Chinese had long been accustomed
to so-called "tax oppression," and regressive taxes and arbitrary
rates had been common. The immediate needs of the provincial warlord
and the local tax' collector invariably took precedence over ability
to pay. For example, agricultural taxes were sometimes collected
several years in advance, and the amount of taxes paid often reflected
the outcome of the perennial argument with the tax collector.
b. There is a possibility that the Chinese were more
tolerant of high taxes in 1950-59 than they had been in the past. The
industrial gains that China made were highly publicized within the
country, and the regime promoted the image of a vigorous "New China"
that would be ready to take its place in another generation among the
industrial nations of the world. Even though substantial gains in
personal consumption might be several decades away, China was now
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united for the first time in centuries and was making rapid industrial
progress. The Chinese people were particularly susceptible to the
pride of this achievement, and in this context the burden of taxes
probably was tolerated more readily.
c. The strictures of totalitarian control in Communist
China were so heavy that the average Chinese was preoccupied with many
burdens more oppressive than taxes. The virtually complete regimenta-
tion of the individual and the glorification of physical labor imposed
an unprecedented work load on the Chinese people. The tiring physical
effort, interspersed with compulsory "ideological discussions," left
little energy for personal reflection. Taxes, particularly when they
were largely indirect, may have had only a slight influence on the
incentives that motivated the individual.
d. For some Chinese the "tax burden" probably was
not a clearly defined concept. The illiterate and poorly educated in
China may not have been conscious of the tax burden as such, espe-
cially when it was hidden in commodity prices. He was perhaps aware
of high prices and unsatisfied demands, but this problem may have been
no more explicable in terms of a tax burden than in terms of the tradi-
tional shortage of goods in China. If this concept was widespread, it
was much easier for the regime to permit the rate of taxation to in-
crease faster than the rate of increase in personal income, at least
within limits.
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IV. Evaluation of the Chinese Tax System
The standard economic criteria for evaluating a tax system --
equity, social justice, economic rationality, ease of administra-
tion -- are predicated largely on a free market economy and must be
modified when applied to a planned economy, like that of Communist
China. The allocative functions of a competitive price system are
now exercised in China by the state. Although a system of prices is
essential in China, the price of each productive resource does not
necessarily reflect its relative usefulness and scarcity. Resources
do not necessarily seek out the most profitable alternative employ-
ment but rather are directed by the state plan according to a system
of priorities designed to achieve specific economic objectives. Most
physical resources are state property. Large segments of the labor
force may be and are moved about at state direction. In evaluating
the tax system of China's controlled economy, therefore, it is not
possible to give the usual consideration to social justice of specific
tax measures or to consider some aspects of equity in taxation or to
be as critical of administrative costs. The criterion of economic
rationality assumes greater importance, however, particularly the role
of the over-all tax structure in promoting economic objectives of the
state.
The tax structure of Communist China will be evaluated in this
report primarily in terms of how well it supports the economic objec-
tives of the state. Given these state objectives, the following
evaluation analyzes the tax system in terms of (1) the equity and
social justice of Chinese taxes, (2) the economic rationality of the
tax system (from the Chinese point of view), (3) the cost of adminis-
tering the over-all tax system, and (4) alternative forms of revenue
available to the Chinese.
A. Equity and Social Justice
Socialization in Communist China upset many of the economic
conditions normally assumed in evaluating a tax structure in terms
of equity and social justice. For example, in the free-market economies
of the West the freedom of individuals to maximize their economic rewards
may be modified by progressive taxation that reduces variations in
income and wealth, and the tax systems are then evaluated for their
degree of social justice. In China, however, the social changes that
had occurred by 1958 removed nearly all large variations in wealth and
income, satisfied much of the criterion of social justice directly,
and greatly reduced the need for progressive taxation. Even the leader-
ship and top managers in China do not have the large income-in-kind
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that in the USSR provides many Party officials and plant managers with
a much higher standard of living than the average. Furthermore, a
specific Chinese tax may discriminate against one group and favor
another, but the equity of the tax must be examined in the light of
the state objectives for which the tax was designed.
In the context of conditions in Communist China, the criterion
of social justice implies that the tax system should not be regressive,
and the criterion of equity implies that individuals or households in
the same economic position should be given identical treatment for tax
purposes (except where state policy specifically requires discrimi-
nation).
1.. Progressive Nature of the Tax System
The Chinese tax system contains elements of both progres-
sion and regression. As a whole, the system probably was more nearly
progressive during 1950-57. After 1957 the system probably was either
proportional or mildly regressive, but socialization of the economy
had eliminated those who could earn incomes much higher than the aver-
age. The data are not available, however, to provide a quantitative
measure of the progressivity of individual tax measures or of the system
as a whole.
a. Agricultural Tax
The basic agricultural tax levied on individual farmers
in 1950, which remained in effect with little change through 1957,
applied progressive rates to most agricultural income. The typical
rate structure carried an increase of one percentage point in the tax
rate for each addition to per capita income of 70 to 140 pounds of
grain. One of the announced objectives of this tax was the redistri-
bution of farm income. Although large landholdings were abolished
early by the Communists, the old differences in land and income between
poor and middle-class peasants remained for some time. The progressive
rates of the agricultural tax probably smoothed out the individual
differences in farm income to some extent and gave the tax system in
the countryside a strong element of progression from 1950 to 1957.
When the household farm lost its identity during the
all-out drive to establish cooperatives in the 1955/56 crop year,
there was no longer any need for progressive taxes on agricultural
income. Progressive taxes were even less essential in the communes
set up in 1958, when peasants became members of large work teams,
when they ate in messhalls that dispensed food according to the indi-
vidual's ration status, and when they were remunerated only partly on
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the basis of individual effort. The agricultural tax lost its progres-
sive nature in the tax reform of 1958, when the commune paid the agri-
cultural tax, based on new proportional rates. The only taxes paid by
individuals were miscellaneous local fees and the commodity taxes that
were included in retail prices. These commodity taxes may have been
mildly regressive, in view of the very low cash income of the average
peasant. This regression did not imply a violation of the criterion
of social justice, however, because individual farm income was then
closer to uniformity than at any time in Chinese history, in spite
of generally weak attempts to spur production with various incentive
systems. After the socialization of agriculture the relatively small
differentials that remained in individual farm income (within the
collective) probably were disturbed very little by taxes. Incomes of
collective units, however, continued to differ widely. Even though
the collective paid the agricultural tax on a proportional basis, the
authorities introduced a progressive element by (1) varying the tax
rate over broad areas, (2) exempting poor units from making contri-
butions to the commune reserve fund,* and (3) directing state sub-
sidies primarily to poor production units, while at the same time com-
pelling richer ones to finance their own investment projects.
b. Commodity Taxes
The largest single form of tax paid by Chinese con-
sumers -- various commodity and turnover taxes that become part of
retail prices -- cannot be characterized either as clearly progressive
or as regressive. Commodity taxes in non-Communist countries are
generally assumed to be regressive. The extent of regression, however,
depends on the distribution of individual income and the structure
of the tax. If the variation in personal incomes is small, if indi-
vidual consumption patterns are somewhat similar, and if necessities
are taxed lightly relative to luxuries, a commodity tax system may not
be regressive.
The limited data available indicate that variations of
personal income in Communist China in 1950-59 were indeed small and
that individual expenditure patterns were similar. The Communist
regime was successful in its efforts to remove the extremes of wealth
and incomes through expropriation. The moderate income variations
that existed in 1959 reflected wage and salary differentials, which
for the vast majority of the Chinese were not very substantial. These
wage differences probably had less impact on China's low absolute level
of income than they would have had on a higher level of per capita
income. For example, an individual who earned 100 yuan more annually
* Before 1958, equivalent contributions were made by cooperatives to
the township governments in the form of local surtaxes.
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than his neighbor could spend more on necessities but very little
more on luxuries. In 1959, all Chinese household consumers continued
to be very poor. Until the Chinese per capita income rises clearly
above the subsistence level, household consumption patterns are not
likely to differ greatly.
The commodity tax rates effective in 1959 in China
reduced the regressive effects of this kind of taxation. The rates
were in general lower for necessities than for luxuries. For specific
commodities, higher quality was taxed more heavily than lower quality.
The differential treatment of important consumer goods in the schedule
of taxes in effect since mid-1958 is shown in Table 23.*
For most of these commodities the spread between high
and low tax rates resulted in a substantial difference in the final
retail price. This difference was particularly evident in the case
of such staple items as seafood. Even for a comparative luxury such
as cigarettes, there was a tax incentive for low-income smokers to roll
their own. Some of the items in Table 23 such as cosmetics, wines,
paper, and woolen cloth are rarely purchased by the mass of Chinese,
so that tax differentials in these items were not applicable to the
majority of consumers. The progression that these tax rates contributed
to the over-all tax system cannot be given a quantitative measure. There
is a strong presumption, however, that Chinese consumers with sufficient
incomes to purchase high-quality and luxury items -- probably a very
small minority -- were taxed considerably higher than the average con-
sumer.
Tax rates for a long list of consumer goods also show
that most basic food and clothing items were taxed relatively lower
than luxury items, but some staple items were taxed as high or higher
than some nonessentials. In Table 24,** consumer goods are arranged
by commodity tax bracket. Within each bracket, commodities are dis-
tributed approximately so that items purchased by low-income groups
are at the beginning of each list and so that items purchased by high-
income groups are at the end of each list.
In Table 24 a comparison favorable to progression may
be made between some basic commodities in the lowest tax range (the
first five or six items in the bracket of 0 to 10 percent) and some
luxury items in much higher brackets (watches and fancy foods at 30 to
4o percent or cigarettes and cosmetics at 50 to 70 percent). Non-
essentials such as carpets and silk cloth, however, also were taxed
at only 0 to 10 percent, whereas the staple food item vegetable oils
* Table 23 follows on p. 69.
** Table 24 follows on p. 70.
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Table 23
Communist China: Tax Rates on Selected Consumer Goods 2/
for the Period 1958-60
Percent
Cotton cloth
Printed and dyed
Unbleached
Woolen cloth
Tax Rate Tax Rate
Cosmetics
5 Perfumes, rouge, lipstick,
1.5 nail polish, face cream
Talcum powder
Prickly heat powder
Of imported wool 35
Of domestic wool 15
Seafood
Beche-de-mer, fins,
conpoy, abalone
Ordinary seafood
Sugar
Machine-made
Native sugar
Candy and cakes
Blankets
Woolen
Cotton
35
5
44
39
27
Paper
Special paper
Ordinary paper
Cigarettes
Grade A
Grade B
Grade C
Grade D
Grade E
Cigarette paper
Native tobacco
Wines made of grain
51
30
15
20
10
69
66
63
60
4o
18
4o
15 White or yellow wine 60
6 Native sweet wine 40
a. These tax rates are levied on the base prices of the manufacturer or
the processor, and the tax then becomes part of the retail price of the
commodity. Tax rates in this table are a partial breakdown of the gen-
eral tax structure shown in Table 7 (p. 28, above).
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Table 24
Communist China: Commodity Tax Rates on Selected Consumer Goods
for the Period 1958,60
0 to 10 Percent
Grain
Wheat flour
Cotton cloth
Seafood (plain)
Egg products
Cotton blankets
Canned foods
Books and magazines
Ordinary paper
Pencils
Ink
Silk cloth
Powdered milk
Carpets
Tooth powder
10 to 20 Percent
Vegetable oils
Earthen ware
Wines made of substitutes
Rubber products
Cigarette paper
Soap
Enamel ware
Glassware
Aluminum ware
Leather goods
Tooth paste
.Linen cloth
Woolen cloth and blankets
Bicycles
Radio receiving sets
Phonograph records
20 to 30 Percent
Cotton yarn
Matches
Fruit wines
Flavoring essence
Fruit juice
Candy and cakes
Clocks
Electric fans
Cameras
30 to 140 Percent
Native sugar
Tea
Cut tobacco
Cigarettes (lowest grade)
Beer
Watches
Food luxuries
40 to 50 Percent
Flue-cured tobacco
Machine-made sugar
Saccharine
50 to 60 Percent
Cigarettes (medium-grade)
Cigars
Cosmetics
Items such as incense and spirit money
6o to 70 Percent
Cigarettes (highest grade)
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was taxed at 10 to 20 percent and tea and native sugar at 30 to 4o 'per-
cent. Some items that were out of the average consumer's price range
carried relatively low tax rates, such as radios and records at 10 to ?
20 percent and cameras and electric fans at 20 to 30 percent. Other
luxuries, such as cigarettes and cosmetics, carried the highest tax
rates.
In addition to the commodity tax rates shown in Table
24, all consumer goods were subject to a 3-percent retail sales tax.
This levy had the effect of narrowing the spread in effective tax
rates between low-income purchasers of low-taxed commodities and high-
income purchasers of high-taxed commodities.
c. Taxes on Private Business
The taxes levied on private businessmen during 1950-57
included a progressive income tax and a series of excise taxes designed
to be discriminatory. The objective was to limit the profitability of
private business and gradually to force it into joint ownership with
the state. Although this group of taxes touched only a small part
of the population, it was clearly progressive in effect.
d. State Enterprise Profits
The large profits remitted to the treasury by state
enterprises during 1950-59 were shifted forward in many cases to the
prices of finished products. There is no evidence, however, to indi-
cate which consumer commodities were most profitable or whether the
highest profits were made on necessities or on luxuries. For example,
the food-processing industry was reported to be relatively profitable,
but it is not known how much of the profits can be attributed to the
processing of specialty items and how much to staple foods. This
absence of detailed information on the profits of state enterprise
precludes an evaluation of their progressiveness in the form of final
commodity prices.
e. Summary of Tax Progressivity
When commodity and retail taxes are taken alone as a
class, there is little support for a thesis of progression in the
tax system of Communist China. Commodity taxes appear to be neither
highly progressive nor highly regressive and may be approximately
proportional. On the other hand, during the first 7 or 8 years of
the Communist regime, the agricultural tax and the taxes on private
business gave some progressivity to the Chinese system. If commodity
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taxes during this time were approximately neutral, the over-all struc-
ture probably was somewhat progressive. If commodity taxes were
slightly regressive, the over-all system probably was proportional.
After 1957, when the individual farmers no longer paid the agricultural
tax and private businessmen ceased to operate, only the commodity
taxes and a few minor direct taxes remained. The system had then lost
its identifiable elements of progression. At the same time, the need
for sharp progression had been removed by greatly reducing the spread
between individual incomes before tax. Under these circumstances a
proportional system would meet reasonably well the criterion of social
justice, whereas a mild degree of regression would be less objection-
able than in most Asian countries, where large income differences per-
sist.
2. Equitable Treatment of Taxpayers
Individuals or households in the same economic situation,
measured by such standards as income and dependents, should be treated
identically for tax purposes. This general standard of equity is
compromised in the Chinese tax system only in cases where discrimina-
tory taxes were deliberately imposed to further state policy objec-
tives. Two instances of such deliberate tax discrimination may be
recognized in the Chinese system, both of which can be explained in
terms of specific state policy toward private enterprises.
a. Taxes on Private Enterprise
When the Communists assumed control of all China in
1949, nearly half the value of industrial production and more than
three-fourths of the wholesale and retail trade was in private hands.
During the 4 or 5 years required to socialize this private sector,
the Communists levied taxes that favored those business operations
that they wished to encourage. Very low rates of the gross receipts
tax and generous deductions from the net income tax were granted to
producers of essential items, such as iron and steel, basic chemicals,
and certain machinery. Nonessential consumer goods, on the other hand,
were heavily taxed. These tax differentials were intended to reinforce
the system of priorities that had been established for the industrial
development of China, and any inequities that occurred among individual
taxpayers were only incidental byproducts of this objective.
In the second instance of discrimination, the regime
singled out private businessmen as a class and treated them more
severely than various types of socialized industry and commerce. For
example, only private business was subject to a net income tax. Inter-
mediate production processes were subject to taxes similar to those
on end products, and a wide range of state price controls made it
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difficult for private businessmen to shift taxes to the consumer. By
contrast, cooperative forms of organization were often granted complete
tax exemption for several years, and state enterprises had access to
subsidies when necessary. The inequities in this situation were
obvious to the regime, but they simply reflected the clearly defined
policy of the Communists toward private enterprise. The normal cri-
terion of equity simply does not apply, therefore, to these cases of
tax discrimination in industry and commerce.
b. Agricultural Tax
The basic agricultural tax, applied against the gross
income of farm households, contained several inequities. Although it
made allowance for the number of dependents in a household, it ignored
variations in costs. Two households with equal gross income and the
same number of dependents paid an identical tax, even though costs on
one farm may have been double those on the other. There was no ex-
plicit rationale for this violation of equity, and it probably was
the result of the intention of the regime to keep the agricultural
tax as simple as possible. An attempt to make adjustments on the basis
of costs would have greatly complicated the tax, and such an attempt
might have made administration of the tax extremely difficult among a
group of taxpayers with a high degree of illiteracy and little ability
to keep records.
A second inequity arose in the agricultural tax because
of the "set yield" that was used as the tax base. The tax rates were
applied against the normal yield of each farm rather than the actual
gross returns each year. With the tax payment more or less constant
over several years and the crop yield subject to fluctuation, the
effective tax rate varied. Tax relief was granted only if an indi-
vidual farm was part of an area officially declared to have suffered
from "natural calamities,"* a procedure that put the burden of annual
variations in yield on the individual farm household, causing inequi-
ties among broad farm areas as well as between rural and urban tax-
payers.
The tax changes of 1958 shifted both of these inequi-
ties in the agricultural tax from the individual household to the farm
cooperative, or, later, to the commune, because the productive unit
then became the taxpaying unit. These inequities in the agricultural
tax were by 1959 reflected on the individual only to the extent that
a high-cost production brigade** or a below-norm yield left a smaller
* See II, A, a, (1), p. 13, above.
** The production brigade, which was the subordinate unit under the
commune, was the accounting unit in Chinese agriculture as a result of
the shift of functions from the commune to lower units.
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net product to distribute to brigade members. Even this effect was
mitigated, however, by allowing local authorities to vary the tax
rates over comparatively small areas to account for some of the dif-
ferences in costs and annual yields. Probably neither of these inequi-
ties in the agricultural tax could have been corrected during 1950-57
without a heavy investment in administrative effort. These inequities
had been greatly reduced at the commune level by 1959 compared with
the situation in 1950-51 and were too widely dispersed to have much
effect on the individual.
c. Indirect Taxes
Commodity taxes and enterprise profits that were passed
on to retail prices -- the most important form of tax on Chinese con-
sumers -- contained the inequities common to such taxes in every coun-
try. No allowance was made for the number of dependents in a household.
The tax fell unevenly on households with similar income and dependents
but with different expenditure patterns. The tax penalized households
with low assets and high expenditures. Although these inequities exist
in varying degree in any commodity tax system, they were felt acutely
in the Chinese system because of the great importance placed on com-
modity taxes and the absence of direct taxes. It is estimated that
various types of indirect taxation represented 4o percent of all money
taxes on Chinese consumers in 1950 but that this proportion increased
to approximately 70 percent by 1953 and to 99 percent in 1959.* This
high concentration on indirect taxes intensified their inherent de-
fects and greatly affected the equity of the over-all tax system,
particularly in cities where money income was much higher than in the
countryside. There was little attempt in China to redress these tax
inequities through other measures. The Chinese did not have direct
subsidies for dependents of urban families (as was the case in the
USSR), personal medical aid was not highly subsidized, and public
expenditures for other social services were small in relation to tax
revenues.
B. Economic Rationality
It was particularly important to the Chinese Communists to
relate the tax system to their fundamental economic policy of forced-
draft industrialization. If the tax system supported the economic
objectives of the regime (or at least did not disturb them), the sys-
tem may be said, for the purposes of this report, to have met the
criterion of economic rationality. The adequacy of the tax system in
this respect may be judged on the basis of (1) its effect on the allo-
cation of resources, (2) its effect on the price level, and (3) its
effect on incentives.
* See Table 22, p. 60, above.
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1. Effect of Taxes on the Allocation of Resources
The major economic objectives of the Chinese Communists
were to substitute public for private enterprise and to achieve rapid
industrialization with emphasis on heavy industry.. During 1950-59
this program required rearrangement of resources and their allocation
according to detailed priorities. The tax system had only a periph-
eral role in the pursuit of these objectives (the direct power of the
state over resources was a much more important factor). The tax
system, nevertheless, should not have worked at cross-purposes with
these objectives. On the contrary, it should have given them positive
support where there was no serious conflict with other tax require-
ments.
The industrial and commercial taxes that the Chinese Com-
munists instituted in 1950 discriminated against private interests.
Businessmen were required to pay taxes in addition to those paid by
state and cooperative enterprises, and the revenue service enforced
taxes against private firms with methods that were sometimes con-
fiscatory. Although many other techniques were adopted by the Chinese
to further the goal of socialization, taxes made a distinct contri-
bution. Both the structure of taxes and their enforcement against
private business confirmed the Chinese statement that taxes were de-
signed "to utilize, to restrict, and to transform" the private sector.
An examination of the tax rates applicable to Chinese in-
dustry and commerce reveals that there was a distinct pattern of
favoritism toward industry, with a special advantage given to heavy
industry. This pattern is apparent in the examples shown in Table 25*
of gross receipts tax rates and the deductions from net income tax
that were applicable with little change from 1950 through 1957.
There is a marked difference between the first commodity
group in Table 25 (heavy industry) and the other groups. The purpose
of these tax differentials was not so much to cause a direct shift
in resources as it was to create an unprofitable situation for non-
essential activities and a rewarding one for heavy industry. In this
respect, taxes supported other measures that the Communists took to
restrict and eliminate undesirable activity.
The changes made in 1958 In industrial and commercial
taxes carried forward the general policy of taxing consumer goods
(particularly luxuries) more heavily than' industrial products. In
1959, many products of heavy industry either were not taxed at all
or were taxed at rates considerably lower than consumer goods that
* Table 25 follows on p. 76.
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Table 25
Communist China: Treatment of Selected Commodity Groups
Under Gross Receipts Tax and Net Income Tax
for the Period 1950-57
Commodity Group
Mining and metallurgy,
Gross Receipts Tax Deduction
(Percent from Net Income Tax
of Gross Receipts) (Percent)
machine building, basic
chemicals
1
40
Cotton textiles
1
10
Rubber and leather products
2
15
Drugs and medical supplies
2
10
Food and beverage industry
2.5
10
Photography, clocks, and
watches
3
0
Insurance companies
4
0
Silversmiths
5
0
Stock underwriting
15
0
were produced by light industry. The discriminatory taxes against
private business were unnecessary after 1956, and in 1958 the tax
structure was simplified by the abolition of these and other taxes.
During the period when there were still individual farmers
(1950-56), the regime relied to some extent on differential tax rates
in agriculture to alter the crop pattern. Tax advantages were granted
in an effort to encourage industrial crops, such as cotton, tobacco,
and ramie. These advantages coincided with variations in state pro-
curement prices to effect the necessary changes.
The collection of such other revenues as the salt tax,
customs, and miscellaneous local levies probably had little effect on
the allocation of resources. These revenues almost certainly did not
conflict with the major economic objectives of the Chinese Communists.
In summary, the Communist tax system had only a minor
effect on the allocation of resources when compared with the power of
the state to allocate most resources directly, but the structure of
business taxes gave positive support to the Communists' objectives in
this respect. There were frictional costs in shifting resources from
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private to socialized control and into heavy industry, and these
frictional costs were minimized by the Chinese through their policy
of permitting private forms of organization to exist as long as they
were useful to the state. In any event, these costs were clearly off-
set in the Chinese view by the economic and political advantages of
socialized control and planned organization.
2. Effect of Taxes on the Price Level
Price control extended over a wide range of commodities
in Communist China during 1950-59, and according to official Chinese
statistics, prices at both wholesale and retail levels were relatively
stable. Many basic consumer goods, particularly foodstuffs and cloth-
ing, were rationed. Thus there was little need for taxation as an
instrument in fighting open inflation. The magnitude and structure of
taxes have played a part, however, in reducing the pressures on offi-
cial prices.
The proportion of consumer money income taken by taxes
increased steadily from 1950 (17.4 percent) through 1954 (31.5 percent).
After dropping slightly in 1955-56, this proportion again increased
annually through 1959 (to 33.5 percent). Consumer money taxes, there-
fore, were rising faster than consumer money income during these years
when an increasing share of national product was being devoted to in-
vestment. The diversion of consumer money income into livid assets
was relatively small during the entire period 1950-59. Sales of
domestic bonds to consumers accounted for 2 percent or less of con-
sumer money income annually, whereas increments to personal bank sav-
ings were below 2 percent in every year except 1958-59 (when they were
about 5 percent).* The major task of keeping disposable money income
within bounds thus fell on money taxes on consumers.
The structure of taxes also has given some support to the
objective of restraining inflationary pressures by controlling con-
sumer expenditures at the margin. The very low level of per capita
income in Communist China probably resulted in a high marginal utility
of goods. Increments to income were then more desirable for their
ability to satisfy specific needs for commodities than as additions
to liquid assets. This use of income was, however, in direct conflict
with the state policy of restricting consumption (and at the same time
controlling inflation) in order to devote an increasing share of
national product to investment. It was essential in this combination
* A very active campaign was conducted in China to encourage both
personal savings and the purchase of government bonds. It is probable
that in some cases the regime used a mild form of compulsion, and in
this sense these items also represented a form of taxation.
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of circumstances to penalize spending. The heavy reliance that the
Chinese placed on commodity taxes, with high rates for most consumer
goods, met this requirement reasonably well, and it will be particu-
larly useful as personal income rises beyond the subsistence level
and encounters increasingly higher tax rates (or prices) for nonessen-
tial items.
3. Effect of Taxes on Incentives
There probably was not the same emphasis on wage incentives
in Communist China as in the USSR during 1950-59. Some of the Chinese
work incentives arose through fringe benefits such as low-cost housing,
inexpensive meals, and recreational activity provided at the factory
or shop. Specific wage incentives as such are not so important in
this evaluation as the extent to which the structure of personal taxes
could disturb or reinforce these incentives.
Nearly all taxes paid by household consumers in China were
indirect and were included in retail prices of consumer goods. Direct
taxes on consumers represented only about 1 percent of consumer money
taxes. There were no taxes on personal income, and there was a deduc-
tion of only 1 percent from wages for union dues. Thus the incentive
to work additional hours was high because additional wages were not
eroded by direct, progressive taxation.
The ratio of marginal to average tax rates in Communist
China was very low and may have been near unity. Where this ratio is
low, increases in personal income and expenditure will result in only
mild increases in the proportion of income taken by taxes. As consumer
expenditures increase, the average tax rate will not rise appreciably,
and the impact of the tax burden may be virtually unchanged. At the
same time, per capita income in China was very low, and the marginal
utility of goods (even to satisfy subsistence needs) was very high.
This combination of factors increased the incentive to work in order
to increase personal spending. The power of the state to control the
labor force directly, however, had much greater influence than the tax
structure on actual working time.
C. Costs of Administration
Ease of administration was not so important a factor to the
regime in determining its tax structure as adequacy of revenue and
the need to minimize the apparent burden through indirect taxes. Col-
lection problems occupied some attention, however, and opportunities
to simplify the tax system were sought.
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The basic agricultural tax, effective from 1950 to 1957, to- .
gether with its associated local surtaxes, involved more individual
taxpayers than any other revenue measure in Communist China. It was
a graduated gross income tax that was applied to individual farm
households with allowance for dependents, and it was paid twice each
year (following the spring and autumn harvests). This tax, collected
from some 100 million household taxpayers, probably required a sub-
stantial collection effort. In comparison with other revenues col-
lected (the agricultural tax represented about 10 percent of the
total revenue), it may have been one of the most costly forms of Chinese
taxation, but part of these costs would have been incurred in any sys-
tem of farm procurement for sales in retail markets..
Although the costs of collecting the agricultural tax were
high, the Chinese Communists probably minimized these costs as much
as possible. The set yield was used as a tax base, rather than annual
production, thus eliminating the burden of estimating exact yields
each year. There was no need to calculate costs of production, be-
cause only unadjusted gross income was considered. The taxpayer was
not required to file any type of return or to keep records, and in
many cases the agricultural tax was paid concurrently with compulsory
sale of grain to the state. About 90 percent of the tax was paid in
kind at the time of harvest, thus eliminating the need to transfer
funds. Probably no alternative form of agricultural tax was feasible
during 1950-57, when the household unit was still the basic Chinese
taxpaying unit. Whatever additional costs may have been added by
graduating the rates probably was justified in the Communist view
by the desire to redistribute farm income. The revision in 1958 in
the agricultural tax greatly reduced its cost of administration by
abolishing progressive rates and by designating the large agricultural
cooperative (later the production brigade) as the taxpaying unit.
The industrial and commercial taxes levied by the Chinese
Communists during 1950-57 were designed in part to restrict private
business. The Chinese press described in some detail the difficulties
of administering these taxes and referred occasionally to the rela-
tively high costs of collection. From an administrative point of view
these taxes should have been simplified, but the Communists apparently
deemed their structure essential and their costs warranted in order
to support the policy of suppressing private business. The latter
was almost completely socialized by 1958, and the multiple taxes on
industry and commerce were then reduced to a single tax measure.
The consolidated industrial and commercial tax of 1958 was
relatively easy to administer. Most of the revenue under this meas-
ure was collected at the manufacturing or wholesale procurement level,
where the number of taxpayers was relatively small and the compliance
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rate high. The levy on retail trade and various services, also part
of this tax, represented a heavier collection burden, but probably was
easier to administer than the same taxes levied from 1950-57 on a
greater number of private retail merchants.
The profits tax (or remission of profits) on state enter-
prises was a model of administrative ease. This measure represented
the largest source of budgetary revenue and had by far the lowest
collection cost per unit of revenue. It avoided many complications
of the corporate profits tax in Western countries, such as allowable
deductions from income, loss carryovers, and capital depreciation
rates. Each enterprise simply forwarded its profits each month to
the central treasury or to the ministry under which it was controlled.
Administration amounted to a periodic audit by the appropriate tax
bureau.
The miscellaneous taxes in China presented no administrative
complications. The salt tax was levied on salt producers, all of
whom were in 1959 under state or cooperative control. Customs duties
were collected from a few state corporations that monopolized foreign
trade. Local government fees and surtaxes may have involved somewhat
higher collection costs, but they were relatively unimportant in the
revenue structure.
D. Alternative Forms of Taxation
The most important function of the Chinese Communist revenue
system during 1950-59 was its support of the economic objectives of
the regime -- rapid industrialization and the substitution of public
for private control over resources. Large increases in government
revenue during this period represented the financial mechanism for
allocating an increasing share of total resources through the govern-
ment budget to public investment, a step that resulted in substantial
Increases in industrial production. In this way the Chinese budget
effectively met the criterion of providing adequate revenue to finance
economic development. Alternative forms of taxation, however, could
have been used by the Chinese Communists to fulfill their revenue
objective. The questions to be considered are (1) whether a different
revenue structure could raise an equal or larger amount of income at
an equal or lower cost and with no impairment in equity and (2) whether
the system could be so formulated to improve equity with no loss of
revenue and no increase in cost. These questions are only partly
relevant for the Chinese system of 1950-57 because some taxes at that
time had deliberate regulative and discriminatory functions, whose
extra costs were justified by policy objectives. Other tax measures,
however, were not inhibited in this way and were subject to variations
in structure.
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In considering tax alternatives it is helpful to examine the
shares in total government income contributed by various revenue sources
in Communist China and the comparative size of the government budget.
The following tabulation shows the percent of the total revenue con-
tributed by each source during 1955-58:
Source of Income Percent
Taxes 47
Of which:
Commodity taxes 36
Customs duties 2
Direct taxes on income and
wealth 9
Other income 53
Of which:
Income from state enterprises 47
Domestic bond sales 2
Loans from abroad 1.4
During this period, budgetary revenue represented about 26 percent of
the estimated gross national product in an economy that provided per
capita GNP of less than $100.
One source of revenue which the Chinese Communists could have
exploited but which was ignored was the individual income tax. This
tax would have been particularly suitable to personal cash income in
urban areas. With graduated rates and allowance for dependents, it
would have removed some of the inequities inherent in the heavy com-
modity taxes on consumers. Its use, at least to supplement the com-
modity taxes, would have added some progression to the over-all tax
structure.
An individual income tax in Communist China would gain support
largely on the grounds of equity and social justice because it does
not meet other taxing criteria as well. Administrative costs would
have been high because the number of income recepients involved is
large and because income tax returns would be required of many illit-
erate and semi-illiterate taxpayers. Even an income-withholding
scheme that excused most individuals from filing returns probably
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would be more costly than the already existing structure of commodity
taxes. The individual income tax also would have the effect of
minimizing the incentive to work, an effect less pronounced in the
collection of commodity taxes. The ratio of marginal to average tax
rates is close to unity under the present commodity taxes, providing
an incentive to increase income and expenditure that would be dimin-
ished by a graduated income tax. Wage and salary earners also would
become more conscious of the extent of their tax burden under an income
tax. From the point of view of the magnitude of revenue to be collected,
it is unlikely that the income tax could replace commodity taxes as a
revenue source; it could at best serve only as a supplementary levy.
On balance it appears that the disadvantages in terms of costs,
incentives, and adequacy of revenue outweigh the gains in equity and
social justice that could be achieved by an individual income tax in
Communist China. In a different social structure, a strong case might
be made for permitting the individual income levy to have some share
in the consumer tax structure, but equity and social justice through
taxation do not rank high in over-all Connunist philosophy, which lays
primary stress on public ownership of resources and on the direct
equalization of income as the means to social justice. Probably no
form of direct tax on consumers in China would be as productive, as
economical, and as acceptable to taxpayers as the commodity taxes that
dominate the structure at present.
Even in the widespread tax reform of 1958, commodity taxes
probably could not have been formulated to permit a substantial in-
crease in equity or social justice. An attempt at progression was
apparent in the commodity rate structure, but achieving progression
was a difficult task in a commodity tax that had to raise very large
amounts of revenue. The higher the revenue goal, the heavier the tax
had to fall on basic consumption, especially in an economy with low
consumer income. Although the major hope for improvement in equity
lies in shifting some of the burden from commodity taxes to other
forms of revenue, it would be difficult to reduce the share of revenue
derived from commodity taxes because there would be no practical
alternative from the Chinese Communist point of view. The already
large revenue share received from state enterprises could hardly be
increased for this purpose. On the contrary, good accounting argu-
ments existed for reducing it. Other forms of revenue -- such as
customs, the agricultural tax, bond sales, and miscellaneous fees --
were not capable of sufficient growth to be useful in this respect.
High commodity taxes were essential and continued to be the most
appropriate method of taxing the Chinese consumer.
The other big source of revenue, income from state enterprises,
also was ideally suited to the Chinese situation. A part of this tax
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was not shifted to consumers, whereas the incidence of that part applic-
able to consumers was widely dispersed and indirect in form. The col-
lections from this source were probably at an optimum level during
1950-59.
E. General Appraisal
The revenue structure in Communist China during 1950-59, con-
sidered in terms of the fundamental economic goals of the regime, stands
up well against the criteria traditionally used to evaluate a tax system.
Using a plus sign (+) for positive aspects, a zero (0) for neutral
aspects, and a minus sign (-) for negative aspects, the Chinese revenue
system may be summarized as follows:
Economic rationality
Adequacy of revenue
Social justice 0
Equity
Cost of administration
These criteria are arranged approximately in the order of
their importance to the Chinese Communists. Economic rationality and
adequacy of revenue were much more important than the other three
criteria to the Communist system because they gave the clearest sup-
port to the goals of rapid industrial growth and socialization of
economic activity. The criterion of social justice is more important
in the Western democracies than in Communist China, but it was met in
part under the Chinese system by reducing the differences in individual
incomes before taxes. The criterion of equity also received more
attention in most Western countries than in China, but other revenue
goals of the Communists have often conflicted with the criterion of
equity and have been given precedence over it. The criterion of cost
of administration often is of secondary importance to any modern tax
system. In China, however, the cost of administration was reduced
appreciably when the tax system was reformed in 1958.
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APPENDIX A
METHODOLOGY
I. Notes to Table 10 (Communist China: Estimated Profits and De-
preciation Reserves of State Enterprises, 1952-59)*
The origin of data for each entry in Table 10 is indicated in the
following paragraphs.
1. Total Revenue from State Enterprises
2. Fixed Assets of State Enterprises
The Chinese Communists reported that the value of the total
fixed assets of state enterprises in 1952 was 29,600 million yuan. ?11/
The Chinese also reported the yuan value of the additions to fixed pro-
ductive assets from 1952 through 1958. LI/ It is probable that almost
all, if not all, of these annual additions to fixed assets were attrib-
utable to state enterprises. It is unlikely that the value of private
fixed assets increased after 1952. The value of private industrial and
commercial assets was estimated in a non-Communist document to be 3,300
million yuan at the beginning of 1954 and by the Chinese Communists
to be 2,400 million yuan at the beginning of 1956. .?./ Although these
two figures for private industrial and commercial assets may not be
strictly comparable, they indicate a probable decline (rather than an
increase) in private business assets during this period. The assets of
joint public-private enterprises would have increased very slowly dur-
ing the period 1952-56 because this type of enterprise did not become
widespread until 1956. It is believed, therefore, that the additions
to productive fixed assets reported by the Chinese for the period
1952-57 were almost entirely attributable to state enterprises. In
1958 the profits of joint public-private enterprises were for the first
time included in the profits reported for state enterprises, and it
seems a reasonable corollary that at the same time the fixed assets of
joint public-private assets also were included with the fixed assets
of state enterprises.
3. Depreciation Reserves
The depreciation reserves for the years 1954-57 may be derived
from Chinese sources. The Chinese stated that government net financial
revenue (excluding "foreign credits and depreciation") was 31.2 percent
P. 35, above.
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of national income in 1954, 29.5 percent in 1955, 29.6 percent in 1956,
and 30.0 percent in 1957. LI/ These percentages were applied to na-
tional income figures (obtained from the same sources) to derive govern-
ment net financial revenue. The resulting figures were then subtracted
from total budgetary revenue (see Table 3*) to derive the value of
foreign credits and depreciation. Foreign credits, as stated in Chinese
documents (see Table 12**), were then subtracted to give a residual for
depreciation. These calculations
are recapitulated as follows:
Million Current Yuan
1954
1955
1956
.1957
Total budgetary income
26,237
27,203
28,743
31,020
Less net financial revenue
-24,150
-24,160
-27,110
-28,540
Foreign credits and depreciation
2,087
3,043
1,633
2,11.80
Less foreign credits
-884
-1,657
-117
-23
Depreciation reserves
1,203
1,386
1,516
2,457
These estimates of depreciation reserves represented 3.2 percent of the
total fixed assets in 1954, 3.2 percent in 1955, 2.9 percent in 1956,
and 4.o percent in 1957. The average of these four depreciation rates
(3.3 percent) was applied to the total fixed assets for 1952, 1953, and
1958 to obtain the estimated depreciation reserves for those years.
4. Profits
The figures for annual profit for 1952-58 represent the residual
obtained by deducting the depreciation reserves and the amounts attrib-
uted to all other elements of enterprise income (as stated in the foot-
note to Table 10) from the total revenue from state enterprises. The
breakdown of state enterprise income for 1959 was estimated by assuming
that the proportion of depreciation reserves in the total income for
1959 was equal to the weighted average for the period 1954-56 (11.9 per-
cent).
* P. 10, above.
** P. 44, above.
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II. Notes to Table 14 (Communist China: Estimated Consumer Money
Income, 1950-59)*
The origin of data for each entry in Table 14 is indicated in the
following paragraphs. Many of the data required to compute the money
income of consumers, from the expenditures side, have been given
directly in yuan by the Chinese or can be derived from Chinese data.
1. Adjusted Retail Sales
The largest single item of consumer expenditures is retail
sales, figures for which are available for each year during 1950-59.
The total retail sales were adjusted to remove estimated sales to
government and business organizations, as follows:
Year
Million Current Yuan
Total
Retail Sales**
Less Sales
to GoVernment
and Business***
Net Sales
to Consumers
1950
17,060
700
16,360
1951
23,430
1,400
22,030
1952
27,680
2,400
25,280
1953
34,800
4165o
30,150
1954
38,110
41800
33,310
1955
39,220
3,600
35,620
1956
46,100
3,700
421400
1957
47,420
2,700
44,720
1958
54,800
3,000
51,800
1959
63,800
3,500,
601300
2. Purchase of Consumer Services
Consumer services consist of money expenditures for house
rent, transportation, utilities, amusements, and personal services.
The figures appearing in Table 14 for 1950-57 are based on estimates
by Hollister, and the figures for 1958-59 are estimated to be the
same percentage of total retail sales as for the 1950-57 period. /2/
Consumer services include expenditures for urban house rent based on
the number of square meters of housing in 1950 and annual additions
* P. 49 above.
** 68
*** _2/
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thereto. It is assumed that one-half of the total bill for urban house
rent Was paid in cash. Only this cash amount is included in the item
"Purchase of Consumer Services" in Table 14.
3. Purchase of Government Bonds
The data on the purchase of government bonds (all for cash) for
the years 1950-58 are from Table 11.* The figure for 1959 represents
known sales of provincial bonds. National bonds were not sold in that
year.
4. Trade Union Dues
Trade union dues, at 1 percent of the total wages paid, are
estimated to have been as follows:
Year
Number of
Workers**
(Thousand)
Average Annual
Total Payroll
(Million
Current Yuan)
Union Dues
(Million
Current Yuan)
Wage
(Current Yuan)
1950
1951
21760t
5,740t
28
57
1952
15,804
446
7,049
70
1953
18,256
496
9,055
91
1954
18,809
519
9,762
98
1955
19,076
534
10,187
102
1956
24,230
610
14,780
148
1957
24,506
637
15,610
156
1958
32,000
600
19,200
192
* P. 41, above.
** 11/
*** J. The figure for the average annual wage in this column was
multiplied by the total number of workers in the first column to obtain
the total payroll. The figure for 1958 was given as 656 yuan but was
said to be applicable only to those employed before 1958. The new em-
ployees added in 1958 included many new recruits into the labor force
who were employed by small-scale, countryside plants. Their wages un-
doubtedly were below the average wage. Therefore, an estimated average
wage of 600 yuan is used for 1958. Even a large error in this estimate
would have a negligible effect on the final end product of this table.
Union dues in 1959 are believed to have been approximately the same as
in 1958 and are estimated to have been 195 million yuan.
t 73/
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5. Increments in Personal Bank Deposits
The Chinese gave in one series the amount of rural and urban
bank deposits for the period 1949-57. /12/ They also reported that at
the end of 1959 urban bank deposits were 4,720 million yuan and that
rural bank deposits were "more than 4,000 million yuan," giving a total
of at least 8,720 million yuan. IV The increase in the 2-year period
1958-59 was at least 5,930 million yuan. It is believed that the in-
crease in bank deposits would have been greater in 1959 than in 1958
(1) because part of the large increase during the 2-year period prob-
ably was the result of including the deposits of communes and produc-
tion brigades in the total savings deposits, beginning in late 1958
and continuing throughout 1959, and (2) because national bond sales were
discontinued in 1959, with the probability that thereafter the Com-
munists gave greater emphasis to personal savings accounts as a method
of absorbing consumer purchasing power. On the basis of these two
premises, it was estimated that the increase in total savings was
2,300 million yuan in 1958 and 3,630 million yuan in 1959.
6. Direct Taxes on Consumers
The figures for direct taxes on consumers are detailed as follows:
Year
Million Current Yuan
10 Percent of Agri-
cultural Taxes*
(Paid in Cash)
Miscellaneous Fees
Paid by Households**
Total
1950
191
90
281
1951
217
250
467
1952
270
240
510
1953
271
330
601
1954
328
210
538
1955
305
160
465
1956
297
170
467
1957
297
80
377
1958
326
100
426
1959
330
100
430
As noted in II, A, 1, a, p. 12, above, approximately 10 percent of
the basic agricultural tax was paid in cash. Figures for the total
agricultural taxes in 1950-59 are given in Table 3 (p. 10, above).
** Fines; administrative fees; insurance; and fees for educational,
health, and other services. Figures for 1950-57 are from Hollister. /?./
In the absence of a specific figure for 1958-59, estimates of 100 mil-
lion yuan were assumed.
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The estimates of the total consumer money income in Table 14
from the expenditurea side can be checked for the years 1954-57 by
eatimates from the income side. For these years the Chinese reported
the total money income of urban citizens and the value of products
purchased from farmers. Neither of these magnitudes was defined, and
their specific composition was not known. Nevertheless, the context
in which they were reported by the Chinese implied that they were
mutually exclusive and that each of them probably represented nearly
the total money income for-its respective income category. The
following, tabulation represents these estimates of consumer money
income from the income side:
Million Current Yuan
Purchase of Total
Money Income Agricultural Other Money
Year of Urban Citizens* Products** Money Income*** Income
1954
19,660
17,360
3,702
40,722
1955
20,620
17,800
3,842
42,262
1956
24,700
18,400
4,310
47,410
1957
25,510
20,280
4,579
50,369
** I. Purchases of agricultural and subsidiary products by state
commerce, supply, and marketing cooperatives. These sums constituted
the largest source of money income to the farm sector.
XXX The first two categories in this tabulation accounted for most
of the total consumer income. Additional money income probably was
received in smaller villages not classified as "urban," by peddlers
in the countryside, through sales by farmers to the small free market
that has existed from time to time, and the like. These income sources
are estimated to have been 10 percent of the sum of the first two cate-
gories.
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Notes to Table 16 (Communist China: Estimated Consumer Money
Taxes, 1950-59)*
The origin of data for each entry in Table 16 is indicated in the
following paragraphs.
1. Direct Taxes on Consumers
Data on direct taxes on consumers are from Table 14.**
2. Salt Taxes
Salt taxes, levied on salt producers, applied only to salt
which was used in personal consumption and which was used by fisher-
men. Salt used for agricultural and industrial purposes was not taxed.
It is believed, therefore, that all of the salt taxes reported in bud-
get revenue were passed on to consumers.
3. Customs Duties
Chinese foreign trade figures show that the value of consumer
goods represented about 10 percent of the value of total imports dur-
ing 1950-59. Consumer goods, however, were assessed customs duties
that were from 2-1/2 to 5 times higher than the most essential indus-
trial goods and 2 times higher than industrial goods of less essential
types (see II, let, 3, p. 29, above). It is probable, therefore, that
duties on consumer goods represented at least 25 percent of the total
customs collections. Some of the nonconsumer imports consisted of raw
materials and machinery for light industries that were used in produc-
tion of consumer goods, and it is believed that another 25 percent of
the total customs collections could be attributed to these items. Thus
it is assumed that one-half of the total customs duties collected each
year represented indirect consumer money taxes.
4. Retail Commodity Taxes and Retail Profit Taxes
Estimates of commodity taxes paid by consumers are derived by
dividing this levy into two separate groups: (1) taxes that were ap-
plied at the retail level and (2) taxes that were applied at the manu-
facturing and wholesale levels. The retail commodity taxes are pre-
sented in detail in Table 26.XXX
* P. 52, above.
** P. 49, above.
*** Table 26 follows on p. 93.
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Table 26
Communist China: Retail Commodity Taxes
1950-59
Million Current Yuan
(1)
(2) (3) (4) (5) (6) (7)
Year
Adjusted State,
Retail Trade a/
Taxes on State,
Retail Trade
Profit of State,
Retail Trade 2J
Adjusted Nonst,
Retail Trade a
Taxes on Nonstate
Retail Trade 21
Profit of Nonstate
Retail Trade 2/
Total Retail Commodity
and Profit Taxes
(Sum of Columns 2, 3,
5, and 6)
1950
1,230
74
98
15,130
908
144
1,224
1951
3,100
186
248
18,930
1,136
140
1,710
1952
7,200
432
576
18,080
723
132
1,863
1953
10,300
618
824
19,850
794
120
2,356
1954
18,150
1,089
1,452
15,160
606
127
3,274
1955
19,340
1,160
1,547
16,280
651
43
3,401
1956
23,595
1,416
1,88818,805

752
376
4,432
1957
24,205
1,452
1,936
20,5151,026
410
4,824
1958
33,685
2,021
2,695
18,115
906
362
5,984
1959
60,300
3,618
4,824
8,442
a. The value of retail sales of the state network in 1950-58 was given in yuan. 12/ The adjusted nonstate retail sales in column 4, above, was the difference be-
tween total retail sales (in Table 14, P. 49, above) and state retail sales. The adjusted nonstate retail sales included those of the private sector, joint public-
private enterprises, and cooperatives. The sales of both state and nonstate sectors above were adjusted similarly to the total retail sales in Table 14 (p. 49,
above) on the assumption that approximately 75 percent of the retail sales to government and business enterprises were from the state network and approximately
25 percent were from the nonstate network. No breakdown between state and nonstate retail sales is available for 1959. Nonstate retail sales are therefore included
with state retail sales for that year.
b. In December 1957 it was said that "according to provision of current tax laws" 6 percent of state "sales turnover" was accounted for by taxes. Furthermore, it
was said that, calculated on the basis of commodities sold in 1954, a 10-percent increase in sales would yield 130 million yuan in additional taxes. L32/ The total
taxes must, therefore, have been 1,300 million yuan, indicating a "sales turnover" of 21,667 million yuan (tax collection divided by average rate). The total retail
sales of state commerce in 1954 were reported officially to be 21,750 million yuan. L31/ Because this published figure is almost identical with the figure of "sales
turnover" computed in this report, the figure almost certainly refers to retail trade. The Chinese monograph giving the figure of "sales turnover" was published in
December 1957, and the "current tax laws" to which it referred probably were the rates in effect from 1953 through 1958 with only minor changes (see II, A, p. 11,
above). The over-all tax rate of 6 percent was therefore applied to state retail trade for these years to obtain the taxes on state retail trade in column 2. The
same rate also was applied to state retail trade for the years 1950-52 because a comparison of tax rates for this period with those for 1953-57 revealed very little
change (see II, A, p. 11, above). This rate of 6 percent was also applied to 1958-59 because during the first half of 1958 the old tax rates were applicable and
because the new rates that took effect for the latter half of 1958 and for 1959 differed very little from the previous rates. This assumption of an unchanged 6-
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Table 26
Communist China: Retail Commodity Taxes
1950-59
(Continued)
percent average rate throughout the period 1950-59 assumed that there were no marked changes in the commodity composition of retail trade. Retail trade in China
during the period contained such a high proportion of daily essentials that substantial changes in the commodity mix were unlikely.
c. The same monograph that reported that taxes comprised 6 percent of "sales turnover" stated that profits were "about 8 percent" of sales turnover. This percent-
age was applied to the state retail sales (column 1) for the years 1950-59 to obtain the- figures in column 3. Some Variation in the profit rate may have occurred
from year to year, but there is no evidence as to the actual rate for any particular year. These estimates may have been reasonably accurate for the years 1955-57
(the years immediately before the monograph was published) but May have been only approximations for other years. There is some justification for assuming that
profits-of Chinese enterprises were relatively constant. Profits of all state enterprises (including commerce)- were planned-quite specifically for at least a year
in ad-Vance and in the case of the First Five Year Plan (195357) were planned 5 years in advance (realized total government revenues for the First Five Year Plan
exceeded the planned figures by less than 5 percent). There has been no evidence or suggestion in available literature of an increase in the profit rate of one
state sector at the expense of another. Furthermore, the profits of all state enterprises as a percentage of fixed assets remained relatively constant during the
years that this relationship was examined, 1952-58 (see Table 10, p. 35, above).
d. The tax rate on nonstate retail trade during the period 1950-51 is assumed to have been 6 percent of sales, equivalent to the rate for state sales. It is be-
lieved that the commodity composition in the state and nonstate sectors may have been comparable in those years and that both sectors were subject to the same tax
structure. The state sector accounted for less than one-fourth of the total retail sales in 1950-51 but increased to more than one-half by 1954. State trade
first assumed control over the more essential commodities of retail trade, on which tax rates were relatively lower. The higher taxed commodities probably became
a larger share of private retail trade (which was part of the nonstate sector) after 1951. Most of these commodities, however, were purchased by private retailers
from manufacturers or wholesale houses. The commodity taxes applicable to them Were paid by the manufacturer and included as part of the wholesale (or manu-
facturers') price, and these commodity taxes were not paid directly by private retail traders. Commodity taxes also were paid by organizations or individuals who
purchased farm and aquatic produce for resale, but it is improbable that substantial amounts of such produce were purchased directly from the farmers by private
retail traders after 1952. An increasingly large part of the supplies of private retail traders after 1952 was made available to them directly by the state. It
is likely, therefore, that for the most part private traders after 1952 paid only the 3-percent tax on general retail trade. Included in the nonstate sector of
retail trade are the sales of cooperatives and of joint state-private enterprises, which represented from 5 to 30 percent of the total retail sales during 1954-58.
Most supplies of the joint state-private retailers were furnished by the state wholesale trade organization, and taxes paid by the joint state-private traders con-
sisted largely of the 3-percent general retail sales tax. Cooperative retail sales consisted of both procurement through the state network and direct procurement,
so that the average tax rate may have been more nearly equivalent to that of state sales (6 percent). There is no way of computing a precise average tax rate for
all nonstate retail sales (an average for its three components together). The average rate is estimated to have been about 4 percent during 1952-56 (when cooperative
trade was a smaller share of the total) and to have risen to 5 percent during 1957-58 (when cooperative trade accounted for the largest share of the total nonstate
trade). These average rates -- 6 percent for 1950-51, 4 percent for 1952-56, and 5 percent for 1957-58 -- were applied to the adjusted retail sales of the nonstate
sector in column 4, above. No breakdown between state and nonstate retail trade was available for 1959, and nonstate retail trade was included in state retail trade
in column 1, above.
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Table 26
Communist China: Retail Commodity Taxes
1950-59
(Continued)
e. No profit data were available for the nonstate sector of retail trade, and no accurate estimate of the profit tax on this sector was available. It is not known
to what extent the profit tax on the private sector (for which figures were available) was shifted forward, but in view of the increasing scope of state retail price
controls and the discriminatory taxes applied to squeeze the private sector, it is doubtful that forward shifting of the business profits tax was substantial. It is
believed that the profit tax was not reflected to any appreciable extent in retail prices of the nonstate sector until the cooperatives assumed an increasingly im-
portant role in nonstate trade after 1955. The profit tax that was applied to cooperatives is unknown but was said to be lower than that applied to private business.
In the absence of specific figures, it was assumed that for 1950-55 one-half of the profit taxes paid by private business were applicable to private retail trade and
that one-third of this amount was shifted forward. In the years 1956-58 an arbitrary figure of 2 percent of nonstate retail sales was assumed to represent the profit
taxes of cooperatives, joint state-private retailers, and the few remaining (and still profitable) private retailers. Although these estimates are crude, the magni-
tudes involved are relatively very mall; therefore, even reasonably large errors would have an insignificant effect on the final estimated tax-income. ratio.
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5. Industrial Commodity Taxes and Industrial Profit Taxes
In addition to the retail commodity taxes described above,
the Chinese levied commodity taxes at the manufacturing level and on
the wholesale procurement of farm and aquatic products. These levies
are estimated in Table 271* together with the estimated profit taxes
that were shifted forward in consumer prices.**
* Table 27 follows on p. 97.
** Text continued on p. 103.
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Table 27
Communist China: Commodity Taxes and Profits Taxes
Levied at the Manufacturing Level and Shifted to Consumers
1950-59
Million Current Yuan
(1)
(2)
(3) (4)
Year
Remaining
Industrial-
Commercial
Taxes 21
Remaining
Industrial-
Commercia3,
Profits
Incidence
on Con-
sumers of,
Column 1 Si
Incidence
on Con-
sumers of,
Column 2 11
1950
1,237
1,097
947
402
1951
3,283
2,742
2,488
905
1952
4,860
4,452
3,671
1,433
1953
6,718
6,111
5,070
1,913
1954
7,150
7,753
5,400
2,244
1955
6,871
8,374
5,193
?,564
1956
7,554
9,576
5,711
3,072
1957
8,412
9,437
6,359
3,057
1958
10,890
16,024
7,689
3,983
1959
12,080
23,766
8,533
5,428
a. Remaining industrial and commercial taxes are obtained by subtracting from total industrial and
commercial taxes (given in Table 3, p. 10, above) the estimated retail taxes (columns 2 and 5 of
Table 26, p. 93, above) and the profits tax of nonstate retail trade (column 6 of Table 26). The
amounts in columns 2, 5, and 6 of Table 26 are included in the total industrial and commercial taxes
of Table 3.
b. This column consists of profit remittances of state enterprises plus profits tax on private in-
dustry minus the profits from state retail trade (profits from state retail trade are accounted for
in paragraph it, p. 91, above).
c. The incidence on consumers of the remaining commodity taxes (those assessed prior to the retail
level) was estimated approximately. The Chinese have given no breakdown of tax collections by com-
modity groups. By examining the tax rates applied to specific commodities, however, it was possible
to form a general impression of the amount of such taxes that may have fallen on the consumer, because
the taxes applied either directly to consumer goods or to materials and machines that were used in
production of consumer goods. (The general tax rates for 1950-59 are presented in II, A, 2, p. 19,
above.) Commodity taxes, levied on manufacturers or wholesale purchasers, were much higher for con-
sumer goods than for industrial goods. For example, during 1950-57 the gross receipts tax for consumer
goods was double that for industrial products (most of which were taxed at 1 percent). The commodity
tax of 1950-52 ranged from 5 to 120 percent of taxable value for consumer goods, but only from 5 to
10 percent for industrial goods. Changes in the commodity tax in 1953 were minor and did not alter
the general disparity between rates for consumer goods and those for industrial products. The new
commodity circulation tax introduced in 1953 on 22 items applied mostly to consumer goods, which
carried tax rates approximately double those of the few industrial items included. Finally, the con-
solidated industrial and commercial tax of 1958, which replaced all other commodity taxes below the
retail level, carried relatively higher rates on consumer goods than on industrial goods. The fol-
lowing examples of specific commodity rates under the 1958 tax illustrate this difference (in percent
of manufacturers' price or wholesale procurement price):
1958 Tax Rates
On Consumer Goods
Percent
On Industrial Goods
Percent
Vegetable Oil
12.5
Machines and machinery
5.0
Wheat flour and egg
Mechanized vehicles
4.5
products
10.0
Pig iron and steel
Grain
4.0
ingots
5.0
Other foods
5 to 44.0
Coal gas
2.0
Cotton yarn*
26.0
Asbestos products
6.0
Tobacco and wines
40 to 69.0
Other consumer goods
6 to 55.0
Additional taxes, at various rates, also were levied on different grades of cotton cloth.
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Table 27
Communist China: Commodity Taxes and Profits Taxes
Levied at. the Manufacturing Level and Shifted to Consumers
1950-59
(Continued)
The tax on machines and machinery applied indirectly to consumer goods if the machine products were
sold to light industry. Furthermore, many industrial products apparently were exempt altogether from
the commodity tax. Although no specific data were available on which to base an estimate of the con-
sumer share of total commodity taxes, it is believed that this proportion may have been roughly 75 per-
cent during 1950-57. The unusually large increases in GNP during 1958-59 can be attributed more to in-
creases in industrial than consumption goods. The estimated proportion of commodity taxes passed on to
consumers is therefore reduced to 70 percent for those years. A tax on service trades was in effect
with rates of 1.5 to 15 percent during 1950-57 and with rates of 3 to 7 percent effective in 1958.
Many of those items which comprise normal consumer services (such as tailoring, dry-cleaning, bath
houses, barber shops, restaurants, hotels, rental services) were specifically included. It is esti-
mated that the average tax rate on consumer services may have been about 5 percent, and that this aver-
age rate covered about 80 percent of the annual purchase of consumer services estimated in Table 14.*
The estimated tax on consumer services was subtracted from column 1 -- Remaining Industrial-Commercial
Taxes and to this residual was applied the estimated proportions of these taxes falling on consumers
(75 percent for 1950-57 and 70 percent for 1958-59). These figures are as follows:
Million Current Yuan
Year
(1)
Tax on
Consumer
Services
(2)
- Residual
Industrial and
Commercial Taxes
(3)
Amount of
Column (2)
Falling on
Consumers
(4)
Sum of
Column (1)
and Column (3)
1950
76
1,161
871
947
1951
102
3,181
2,386
2,488
1952
104
4,756
3,567
3,671
1953
124
6,594
4,946
5,070
1954
148
7,002
5,252
5,400
1955
160
6,711
5,033
5,193
1956
182
7,372
5,529
5,711
1957
202
8,210
6,157
6,359
1958
221
10,669
7,468
7,689
1959
258
11,822
8,275
8,533
d. The incidence on consumers of remaining industrial and commercial profits has been estimated under
the following categories:
(1) Profit from Foreign Trade
Profit from the two categories "Foreign Trade" and "Transport and Communications" has been said
to represent 30 percent of the total profits of state enterprises. 82/ It is presumed that this general
relationship may have covered the period 1953-59. (The article referred to gave the shares of profit
contributed by broad categories of state enterprises without reference to a specific year and implied
that they may have been applicable over a period of several years. It is more likely that deviations
from these given shares occurred in earlier years than in the period 1953-59.) The 30 percent share in
total profits attributed to foreign trade and transport and communications yielded value figures of
3,424 million yuan for 1956, 3,409 million yuan for 1957, 5,616 million yuan for 1958, and 8,577 mil-
lion yuan for 1959. Other Chinese sources a/ give the income remitted to the treasury by transport
and communications alone (exclusive of foreign trade) for 1956 and 1957 and the planned figure for
1958. The planned figure for 1958 is presumed to have been overfulfilled in the same proportion that
planned receipts from all state enterprises were overfulfilled. From these total income remissions
by transport and communications, deductions were made for depreciation allowances on the same basis
as this adjustment was made in Table 10 (p. 35, above). The resulting profit figures for transport
* P. 49, above.
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Table 27
Communist China: Commodity Taxes and Profits Taxes
Levied at the Manufacturing Level and Shifted to Consumers
1950-59
(Continued)
and communications were then deducted from the combined profits for foreign trade and transport and
communications to obtain the profits for foreign trade alone for 1956 (1,519 million yuan), 1957
(1,615 million yuan) and 1958 (2;481 million yuan). Profits for foreign trade during the 3-year
period 1953-55 can be derived by Subtracting the figures for 1956 and 1957 from the total profits for
Foreign Trade of the Five Year Plan (1953-57). LI The 5-year profit was 6,330 million yuan, and the
residual for the 3-year period 1953-55 was thus 3,196 million yuan. This sum was allocated over the
3 years in a manner that gave annual profit increases of the same magnitudes as the annual increases
in foreign trade during 1953-55. The resulting yearly profit estimates are: 1953, 940 million yuan;
1954, 982 million yuan; 1955, 1,274 million yuan. Foreign trade profits for 1950-52 were presumed
(arbitrarily) to have been the same percentage of foreign trade turnover as the average for the period
1953-57 (12.9 percent), yielding figures of 545 million yuan for 1950, 767 million yuan for 1951, and
835 million yuan for 1952. Foreign trade profit for 1959 was presumed to have been the same percent-
age of foreign trade turnover as the average for 1957-58 (16.9 percent), giving a profit figure for
1959 of 2,535 million yuan. In order to estimate the amount of foreign trade profits falling on con-
sumers., it was assumed (as it was in the case of customs duties and for the same reasons indicated)
that one-half of profits were eventually reflected in the prices of consumer goods. The assumption
was not as applicable to the years 1950-51 -- during these years only the tax on profits of private
traders (together with profits of state trade) represented a burden on consumer money income. Thus
the profit incidence on consumers for 1950, and to a lesser extent for 1951, may have been somewhat
overstated, but the error due to this factor would have been relatively very small. To recapitulate,
the estimated annual profits earned in foreign trade and the portion attributed as a money tax on
consumers were as follows:
Year
Million Current 'Yuan
.
Foreign Trade
Profits
Foreign Trade Profits
Passed to Consumers
1950
545
273
1951
767
384
1952
835
418
1953
940
470
1954
982
491
1955
1,274
637
1956
1,519
760
1957 -
1,615
808
1958
. 2,481
1,240
19592,535
'
1,268
(2) Profits from Transportation and Communications
Profits figures for transport and communications were estimated to have been 1,905 million yuan
in 1956, 1,794 million yuan in 1957, and 3,135 million yuan in 1958. A separate source reported that
profits of railroads alone in 1956 were 1,463 million yuan -- about 77 percent of the profits from trans-
port and communications. (This estimate included only the incidence on consumers of profits from
transportation, which in China was almost entirely rail. It is probable that only a very small portion
of the communications profits represented a burden on consumer money income.) For the years 1952-56,
it was presumed that 30 percent of total profits flora state enterprises may have been attributed to
foreign trade and transport and communications, as discussed in subparagraph (1) above. From the re-
sulting figures, the estimates for foreign trade profits were subtracted to obtain profits estimates
for transport and communications alone. No estimates were made of transport profits from the state
sector for 1950-51, since this transport was relatively small compared with later years and profits
were probably low. There is no available information on the profitability of transporting various
types of commodities in Communist China. Of particular interest to Table 16 was the transport, largely
by rail, of food from rural areas to urban and other rural areas, of consumer goods manufactured or
imported for domestic use, and of passengers. The transport of industrial raw materials such as coal
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Table 27
Communist China: Commodity Taxes and Profits Taxes
Levied at the Manufacturing Level and Shifted to Consumers
1950-59
(Continued)
and iron ore occupied the largest share of ton-kilometers hauled, but these were likely to be items of
low profit. It is almost certain that relatively expensive and light-weight consumer goods contributed
proportionately more to profit figures than they did to the ton-kilometer figures. In the absence of
specific data, it was estimated that about 80 percent of transport and communications profits were
earned by the railroads and that one-half of this amount had its final incidence on consumer money in-
come. The annual estimates were as follows:
Million Current Yuan
Profits of
Year Transport and Communications
Profits of
Transport Alone
Transport Profits
Passed to Consumers
1952
561
449
225
1953
971
777
389
1954
1,555
1,244
622
1955
1,548
1,238
619
1956
1,905
1,463*
732
1957
1,794
1,435
718
1958
3,135
2,5?8
1,254
1959
6,o42
4,834
2,417
(3) Profits from Industry
In an article written in 1957 the Chinese reported that 35 percent of total profits from state
enterprises were contributed by one group composed of heavy industries and 35 percent by another group
composed of light industries. None of the profits of heavy industry were presumed to have been passed
on to consumers in retail prices. This subparagraph is concerned only with the profits of the light
industry group, which is said to include the Ministry of Food (processing), Ministry of Aquatic Prod-
ucts, Ministry of Light Industry, Ministry of City Services, Ministry of Commerce, the Lumber Corpora-
tion, Textile Ministry, and the pharmaceutical and rubber bureaus of the Ministry of the Chemical In-
dustry. The 35 percent share of total profits earned by light industry was presumed to have been ap-
proximately correct for the period 1950-57. However, the very large increases in GNP in 1958-59 (the
years of the "leap forward") were probably the result more of increases in heavy industry than of
increases in light industrial and consumer goods. The share in profits of light industry for 1958-59
is therefore believed to have declined somewhat and may have been more nearly 25 percent. The minis-
tries and bureaus listed as comprising the light industry group were engaged primarily in serving con-
sumers. It is estimated that roughly three-fourths of their profits were passed on to consumers in the
prices they paid for products of light industry. (This proportion was used for light industry by
Holzman 1,_5" in estimating the burden of money taxes in the USSR, and it is believed to be approximately
correct for China.) From the total profits of light industry must be deducted the profits on retail
trade earned by the Ministry of Commerce, which already appear in Table 16 under the item "Retail Profit
Taxes." (The Ministry of Commerce was included in the Chinese group of light industries.) The result-
ing estimates are
Year
as follows:
Million Current Yuan
Profits of
Light Industry
Less "Retail
Profit Taxes"
Net Profit of
Light Industry
Profits of Light Industry
Passed to Consumers
1950
270
98
172
129
1951
942
248
694
521
1952
1,629
576
1,053
790
1953
2,229
824
1,405
1,054
1954
2,960
1,452
1,508
1,131
1955
3,291
1,547
1,744
1,308
1956
3,995
1,888
2,107
1,580
1957
3,977
1,936
2,041
1,531
1958
4,68o
2,695
1,985
1,489
1959
7,148
4,824
2,324
1,743
This
profits
figure was given specifically in yuan
of transport and communications.
and actually represents about 77 percent of the total
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Table 27
Communist China: Commodity Taxes and Profits Taxes
Levied at the Manufacturing Level and Shifted to Consumers
1950-59
(Continued)
The total industrial profits (including transportation and foreign trade) that were passed on
to consumers, as estimated in the preceding pages, may be summarized as follows (the total of column 4
being carried forward to Table 16):
Million Current Yuan
Year
(1)
Foreign Trade
(2)
Transport
(3)
Light
Industry
(4)
Total
Profits
1950
273
N.A.
129
402
1951
384
N.A.
521
905
1952
418
225
790
1,433
1953
470
389
1,054
1,913
1954
491
622
1,131
2,244
1955
637
619
1,308
2,564
1956
760
732
1,580
3,072
1957
808
718
1,531
3,057
1958
1,240
1,254
1,489
3,983
1959
1,268
2,417
1,743
5,428
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IV. Notes to Table 18 (Communist China: Indexes of Consumer Money
Income and Taxes, 1951-59)*
Column 1 of this table, "Consumer Money Income Before Taxes," is
an index of the consumer money income derived in Table 14.** Column 2,
"Consumer Money Taxes," is from Table 16.*** Column 3, "Consumer Money
Income After Taxes," is an index of the figures obtained by subtracting
the totals in Table 16 from the totals in Table 14. Column 4 in
Table 18,t "Consumer Money Income After Taxes, Corrected for Price
Changes," was obtained as follows: (1) retail trade figures from
Table 14 were deflated by the official retail price index for the years
1951-58 (the Chinese reported that commodity prices in 1959 were
"stable," and the index in 1959 was assumed to be unchanged from
1958 L3g); (2) to these corrected retail sales figures were added the
other components of consumer money income from Table 14; (3) consumer
money taxes were subtracted from this figure; and (4) the results were
reduced to an index. These calculations are shown in Table 28.tt
The estimated consumer money income per capita in real terms was
calculated by correcting for retail price changes and population in-
creases. Changes (if any) in prices of other components of consumer
money expenditure were not accounted for, but they represented only
about 15 percent of the total and were items that probably experienced
very little price change. The calculations are as follows:
Consumer Money
Income
After Taxes
and Corrected
for Retail
Price Changes Chinese
(Million Population
Year Current Yuan) (Million)
Per Capita
Money
Income
(Current Yuan)
Index of
Per Capita
Income
(Previous Year = 100)
1951
19,260
558
34.5
1952
20,666
570
36.3
105.2
1953
22,745
583
39.0
107.4
1954
24,780
596
41.6
106.7
1955
26,671
611
43.7
105.0
1956
31,803
626
50.8
116.2
1957
32,535
641
50.8
100.0
1958
38,125
657
58.0
114.2
1959
42,661
674
63.3
109.1
P. 55, above.
P. 49, above.
P. 52, above.
P. 55, above.
Table 28 follows
on P. 105.
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Table 28
Communist China: Derivation of Consumer Money Income After Taxes
Corrected for Changes in Retail Prices (Column 4, Table 18)
1951-59
(1)
Retail Trade
Year (Million Current Yuan)
1951
1952
1953
1954
1955
1956
1957
1958
1959
22,030
25,280
30,150
33,310
35,620
42,400
44,720
51,800
60,300
(2)
Official
Retail Trade
Price Index
(1951 = 100)
100.0
99.9
103.1
105.4
106.2
106.2
108.5
108.2
108.2
(3)
Corrected
Retail Trade
(Million Current Yuan)
22,030
25,305
29,243
31,603
33,540
39,925
41,217
47,874
55,730
(4)
Corrected
Consumer
Money Income
(Million Current Yuan
25,516
28,789
33,399
36,963
39,008
46;239
48,002
57,117
66,469
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(5)
(6)
Column 4
Less Consumer
Money Taxes Index of Column 5
(Million Current Yuan) (Previous Year = 100)
19,260
20,666 107.3
22,745 110.1
24,780 108.9
26,671 107.6
31,803 119.2
32,535 102.3
38,125 117.2
42,661 111.9
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The net increase in consumer money income that may be attributed
to annual additions to the urban labor force was estimated as follows:
(1)
(2) (3) (4) (5)
Estimated
Average Annual Column 1
Increase in Money Income Multiplied
Number of Average Annual .per Capita in Column 2 by Column 4
Urban Workers -:. Wage' I Rural Areas Less (Million
Year (Thousand) (Current Yuan) (Current Yuan) 221212.16 La "Current Yuan)
1953
2,450
496
30
? 466
1,142
1954
550
519-,35
?
, 484
266
1955
270
534
35
499
135
1956
5,150
610
.444
570
2,936
1957
280
637
4o
. 597
167
1958
7,500
656
45
611
4,582
Total
9,228
The figures in columns 1 and-21 above,,were given directly by the
Chinese, but figures in column 3 were estimated from rural money in-
come and rural population. LT/ This procedure assumes that additions
to the urban labor force originated from rural areas and/or had pre-
vious per capita money income of the amounts shown in column 3. The
net increase in money income of each of the added workers is indicated
by the amounts in column 4. The total increase in money income attrib-
uted to additions to the urban labor force was thus estimated to be
9,228 million yuan. The increase in total personal money income from
1953 to 1958 was 26,737 million yuan (from Table 14), and the propor-
tion of the total accounted for by additions to the urban labor force
was 34.5 percent.
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V. Notes to Table 19 (Communist China: Effect of Tax Increases
on Retail Prices, 1952-59)*
The calculations required to obtain the figures in Table 19 are
shown in Table 29.**
* P. 56, above.
** Table 29 follows on p. 109.
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Table 29
Communist China: Derivation of Estimate of Effect of Tax Increases
on Retail Prices (as Shown in Table 19)
1951-59
(1) (2) (3) (4) (5) (6) (7) (8)
Year
Total Retail Sales 2.1
(Million Current Yuan)
Taxes on Retail Sales3/
(Million Current Yuan
Total Retail Sales
Less Taxes
(Million Current Yuan)
Increase
in Column 3
over Previous
Year
(Percent)
Column 4 Plus 1
Multiplied by
Column 2 s/
(Million Current Yuan)
Column 2
Minus
Column 5 2./
(Million Current Yuan)
Column 6
Divided by,
Column 1 SI
Official Chinese
Retail Price
Index
Annual Increase
(Percent)
1951
22,030
5,789
16,241
1952
25,280
7,613
17,667
8.8
6,298
1,315
0.052
-0.1
1953
30,150
10,053
20,097
13.8
0,664
1,389
0.046
3.2
1954
33,310
11,645
21,665
7.8
10,837
808
0.024
2.2
1955
35,620
11,872
23,748
9.6
12,763
-891
-0.025
0.8
1956
42,400
13,969
28,431
19.7
14,211
-242
-0.006
o
1957
44,720
15,090
29,630
4.2
14,556
534
0.012
2.2
1958
51,800
18,566
33,234
12.2
16,931
1,635
0.032
-0.3
1959
60,300
23,378
36,922
11.1
20,627
2,751
0.046
o
a. From Table 14 (p. 49, above), item 1.
b. From Table 16 (p. 52, above). All taxes from Table 16 except direct taxes on consumers appear in final retail prices.
c. This column represents the figures that would have obtained for tax collections if their increases each year had been proportionate to the increases in retail sales
less taxes, as shop in column 3. The percentage figures of column 4 were applied to the previous year's figures of column 2.
d. The figures in this column represent the more-than-proportionate changes in taxes that would be expected to cause increases (or decreases) in retail prices.
e. These figures represent the changes in retail prices that migt have been expected as a result of the more-than-proportionate changes in commodity taxes. Some of the
differences between figures in columns 7 and 8 may well be the result of errors of estimating tax magnitudes, but the figures suggest that increases in retail prices may
have been caused primarily by increased taxes.
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VI. Notes to Table 21 (Communist China, USSR, US: Average Rate
of Consumer Money Taxation and Personal Money Income per
Capita, Selected Years, 1951-59)*
The tax ratios for China are from Table 17.** The tax ratios for
the USSR are from estimates by Holzman. _Eli/ Of several alternative
estimates made by Holzman, the ones chosen for this comparison were
those which most nearly compared in tax and money components to the
estimates made for China. Tax ratios for the US were estimated by
making them as nearly comparable as possible to the Chinese and Soviet
tax ratios -- by including in US taxes on consumers one-half of US
corporate profits before taxes (approximately the same percentage of
total state enterprise profits included in the Chinese estimates and
representing the major difference between conventional tax collections
in the US and in China and the USSR).
The per capita money income figures for China were based on total
money income of consumers (from Table 14***) and Chinese population
figures at mid-year. The yuan figures of per capita income were con-
verted into US dollars at the official exchange rate of 2.46 yuan to
US $1. The Soviet figures are from Holzman's estimates of Soviet con-
sumer money income, converted from rubles to dollars at the tourist
exchange rate of 10 old (pre-1961) rubles to US $1.
*
P.
58, above.
**
P.
53, above.
***
P.
49, above.
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APPENDIX B
SOURCE REFERENCES
1. Ten Great Years, Peking, Foreign Languages Press, 1960. (here-
after referred to as Ten Great Years)
Peking Review, no 14, Peking, 5 Apr 60.
Hollister, William W. China's Gross National Product and
Social Accounts, 1950-57, Glencoe, Illinois, The Free Press,
1958.
Ibid., "Estimates of the Gross National Product, 1958-59,"
Studies in Business and Economics, Marquette University,
Oct 60.
Irvine, Reed J. "Phantom Food in Communist China," Asian
Survey, Mar 61.
2. India, Planning Commission. Review of the First Five-Year
Plan, New Delhi, 1957.
International Monetary Fund. International Financial Statistics,
Apr 58.
3. Hollister, 22. cit. (1, above).
4. State, Hong. Survey of China Mainland Press, no 1824,
1 Aug 58.
5. Ko Chih-ta. China's Budget During the Transition Period,
Peking, 1957.
6. Ten Great Years (1, above).
Hollister, 22.. cit. (1, above).
7. State, Hong Kong. Current Background, no 615, 5 Apr 60.
Ten Great Years (1, above).
8. Ten Great Years (1, above).
9. UN, ECAFE. Economic Survey of Asia and the Far East, 1959,
Bangkok, Mar 60.
The Eastern Economist, New Delhi, 7 Mar 58.
Japan, Economic Planning Agency. Economic Survey of Japan,
Tokyo, 1960.
Ten Great Years (1, above).
USSR, Tsentral'noye Statisticheskoye Upravleniye. Narodnoye
khozyaystvo SSSR v 1958 godu (The National Economy of the USSR
in 1958), Moscow, 1959, p. 899.
"Finansovaya statistika" (Financial Statistics), Finansy SSSR,
no 9, Moscow, 1958.
10. People's Practical Economic Dictionary: Public Finance in
China, Shanghai, Ch'un-ming Publishing House, 1953. (here-
after referred to as People's Practical Economic Dictionary)
11. Finance, no 9, Peking, 5 Sep 57.
Kansu Jih-pao, Lan-chau, 8 Aug 57.
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State, Hong Kong. Survey of China Mainland Press, no 1792,
16 Jun 58.
12. Mainichi, Tokyo, 30 Mar 54.
13. Jen-min Jih-pao, Peking, 19 Jun 52.
14. People's Practical Economic Dictionary (10, above).
15. Hsueh Mu-chiao, Su Hsing, and Lin Tse-li. The Socialist
Transformation of the National Economy of China, Peking,
Foreign Languages Press, 1960.
16. Boldyrev, B.G. Finansy Kitayskoy Narodnoy Respubliki (Finances
of the People's Republic of China), Moscow, 1953.
People's Practical Economic Dictionary (10, above).
17. Boldyrev, 2E. cit. (16, above).
18. People's Practical Economic Dictionary (10, above).
19. Kiangsi Jih-pao, Nanchang, 10 Aug 55.
20. Far Eastern Economic Review, Hong Kong, 25 Jun 53.
21. Directive on the Agricultural Tax Work in 1952, Peking,
16 Jun 52.
22. State, Hong Kong. Survey of China Mainland Press, no 1008, 16 Mar 55.
23. Finance, no 8, Peking, 5 Aug 57.
State, Hong Kong. Current Background, no 562, 27 Apr 59.
24. Hsueh Mu-chiao, Su Hsing, and Lin Tse-li, .91. cit. (15, above).
25. State, Hong Kong. Survey of China Mainland Press, no 1792,
16 Jun 58.
26. Chao, Kuo-chun. Agrarian Policies of the Chinese Communist
Party, 1929-59, Institute of Pacific Relations, New York,
Asia Publishing House, 1960.
27. State, Hong Kong. Survey of China Mainland Press, no 1792,
16 Jun 58.
US Joint Publications Research Service. Translations on Com-
munist China's Economic Theory and Accounting System,
Washington, D.C., 18 Dec 59.
28. New China News Agency, Psking, 21 Dec 59.
29. Ibid.
30. State, Hong Kong. Survey of China Mainland Press, no 2145,
30 Nov 59.
31. Ta Kung Pao, Peking, 5 Jun 58.
32. State, Hong Kong. Survey of China Mainland Press, no 2145,
30 Nov 59.
33. Hsin Ying. Price Problems of Communist China, The Union
Research Institute, Kowloon, Hong Kong, 1954.
34. State, Hong Kong. Survey of China Mainland Press, no 1792,
16 Jun 58.
Weekly Report on Communist China, no 5, Washington, D.C.,
16 Jun 58.
35. Tsingtao Jih-pao, 24 Dec 50.
36. People's Taxation, Peking, 10 May 57.
37. Tsingtao Jih-pao, 24 Dec 50.
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38. Ibid.
39. People's Practical Economic Dictionary
State, Hong Kong. Current Background,
4o. Ko Chih-ta, 22. cit. (5, above).
41. State, Hong Kong. Current Background,
42. State, Hong Kong. Extracts from China
no 155, 23 Jan 59.
43. Ibid.
44. New China News Agency, Peking, 12 May 51.
45. State, Hong Kong. Current Background, no 4681 22 Jul 57.
46. Hollister, 22. cit. (1, above).
Ko Chih-ta, 22. cit. (51 above.
State, Hong Kong. Extracts from China Mainland Magazines,
no 101, 30 Sep 57.
).i.7. People's Practical Economic Dictionary (10, above).
48. Tsingtao Jih-pao, 24 Dec 50.
New China News Agency) Peking, 9 Jun 58.
Finance, no 2, Peking, 24 Jan 59.
49. Ta Kung Pao, Peking, 1 Mar 57.
50. New China News Agency, Peking, 18 Mar 57.
People's Practical Economic Dictionary (10, above).
51. Boldyrev, 22.. cit. (16, above).
New China News Agency, Peking, 3 May 56.
52. Ko Chih-ta, op. cit. (5, above).
53. Boldyrev, 22. cit. (161 above).
54. State, Hong Kong. Extracts from China Mainland Magazines,
no 184, 21 Sep 59.
Finance, no 15, Peking, 9 Aug 59.
55. Ko Chih-ta, 22.. cit. (5 above).
Boldyrev, op. cit. (16, above).
56. State, Hong Kong. Survey of China Mainland Press, no
25 Jan 55.
Ibid., no 1452, 17 Jan 57.
Ibid., no 1463, 5 Feb 57.
State, Hong Kong. Current Background, no 562, 27 Apr
Ibid., no 493, 17 Feb 58.
Ibid., no 4641 5 Jul 57.
Hollister, 22. cit. (11 above).
57. State, Hong Kong. Survey of China Mainland Press, no 1245,
12 Mar 56.
Ibid., no 1305, 8 Jun 56.
58. Ibid., no 1114, 19 Aug 55.
Ibid., no 1445, 8 Jan 57.
59. Anhwei Jih-pao, 11 Nov 58.
Ibid., 13 May 6o.
State, Hong Kong. Supplement to Survey of China Mainland Press,
no 74, 2 Mar 61.
(10, above).
no 464, 5 Jul 57.
no 527, 27 Oct 58.
Mainland Magazines,
975,
59.
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60. State, Hong Kong. Current Background, no 336; 14 Jul 55.
Ibid., no 464, 5 Jul 57.
Ibid., no 493, 17 Feb 58.
Ko Chih-ta, op. cit. (5, above).
Ten Great Years 77 above).
61. State, Hong Kong. Survey of China Mainland Press, no 1257,
28 Mar 56.
Ibid., no 1262, 6 Apr 56.
Ko Chih-ta, sit. cit. (5, above).
Ten Great Years 7T above).
62. Ten Great Years (1, above).
State, Hong Kong. Current Background, no 615, 5 Apr 60.
63. Hsueh Mu-chiao, Su Hsing, and Lin Tse-li, op. cit. (15, above),
p.78.
64. Ten Great Years (1, above).
65. Cheng Chu-yuan; Income and Standard of Living in Mainland China,
Union Research Institute, Kowloon, Hong Kong, 1957.
66. Kuan Ta-twig. The Socialist Transformation of Capitalist
Industry and Commerce in China, Peking, Foreign Languages
Press, 1960.
67. Economic Research, no 1, Peking, 23 Jan 58.
Ibid., no 7, 17 Jul 59.
State, Hong Kong. Current Background, no 598, 15 Oct 59.
68. Ten Great Years (1, above).
69. Hollister, a. cit. (1, above).
70. Ibid.
71. Ten Great Years (1, above).
72. Ibid.
73. Hollister: ca. cit. (1, above).
74. State; Hong Kong. Current Background, no 606, 21 Dec 59.
75. Hong Kong Economic Bulletin of Ta Kunz Pao, Hong Kong, 29 Feb 60.
76. Hollister, a. cit. (1, above).
77. China's Finance, Peking, 7 Mar 58. (Translation
Institute, Kowloon, Hong Kong, 8 Apr 58)
78. Ten Great Years (1, above).
79. Ibid.
80. Basic Tasks of Trade, Peking, Kung-jen Publishing House, Dec 57.
81. Ten Great Years (1, above).
82. People's Taxes, no 4, Peking, 1957.
83. State, Hong Kong. Current Background, no 464, 5 Jul 57.
Ibid., no 493, 17 Feb 58.
84. State, Hong Kong. Survey of China Mainland Press, no 1577,
25 Jul 57.
85. Holzman, F.D. Soviet Taxation, Cambridge, Harvard University
Press, 1955.
by Union Research
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86. Ten Great Years (1, above)
Evergreen, no 1, "Press Commun1v4 on the Growth of China's
National Economy in 1959," Peking, 1960.
87. Ten Great Years (1, above).
88. Holzman, a. cit. (85, above).
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