Fewer taxes, better growth
Lan Xinzhen

A COUPLE of recent reports detailing the government’s plan to further stimulate the country’s economy next year have caused a pleasant stir among investors and enterprises alike. A report issued on August 19 by Gong Fangxiong, Managing Director of JP Morgan Chase (Asia), said top government leaders are considering a stimulus plan worth 200 billion-400 billion yuan ($29.2 billion-$58.39 billion), including tax cuts. The plan would also maintain the stability of capital markets and promote healthy development of the wobbly real estate market. The report did not indicate the exact source of the information and was not verified by the government. But the day after it was issued, investors embraced the news and the Shanghai Composite Index surged 178 points.
Another article published in The Economic Observer in August said the government was considering a similar expansive fiscal policy, although no final decisions had been made. It said the Ministry of Finance (MOF) was considering a comprehensive tax cut policy to relax the government’s tightening monetary policy and prevent the economy from slipping. The MOF had yet to hammer out the details about the implementation of the policy according to the needs of the overall economy, the article said. For instance, the ministry must determine whether it would have to make specific adjustments in implementing fiscal policy based on the government’s overall budget, should the economy slide markedly and require stimulation through government expenditure. The ministry has already informed the State Council of the scheme of expansive fiscal policy it had discussed. The government is slated to implement its 370-billion-yuan ($54.01 billion) economic stimulus package on January 1, 2009. It includes tax cuts of 150 billion yuan ($21.9 billion) and newly added expenditures of 220 billion yuan ($32.12 billion).
The article in The Economic Observer said the tax cut plan includes raising the individual tax threshold, increasing tax rebates, and implementing a preferential tax policy for small and medium-sized enterprises (SMEs). Newly added disbursements are mainly in the areas that involve people’s livelihoods and investments, such as 45 billion yuan ($6.57 billion) for social security, 46 billion yuan ($6.72 billion) for agriculture, 38 billion yuan ($5.55 billion) for science, technology and education, 35 billion yuan ($5.11 billion) for public construction, 8 billion yuan ($1.17 billion) for subsidies for state-owned enterprises and 28 billion yuan ($4.09 billion) for energy, exports and the import of staple ommodities. An economic slide Figures from the National Bureau of Statistics (NBS) show that in the first half of 2008, the country’s GDP grew 10.4 percent year on year, which was 1.8 percentage points lower than the rate in the same period last year. An MOF report predicts that in the following months, the growth rate of fiscal revenue may continue to remain low.
As GDP growth dropped, the growth of fiscal revenue turned downwards in July. According to MOF figures released on August 21, the country had fiscal revenue of 532.33 billion yuan ($77.71 billion) that month, a year-on-year increase of 13.8 percent, which was 19.3 percentage points lower than the same period last year and 19.7 percentage points lower than the rate in the first half of 2008. The major factor that encumbers fiscal revenue growth is the negative growth of business taxes from the securities, insurance and real estate sectors. In the first half of 2008, China’s stock market fell sharply, causing significant revenue drops in the securities and insurance industries. At the same time, the real estate market also suffered a continual downturn.
Other factors, such as worldwide economic stagnation, the appreciation of the renminbi and price hikes of raw materials and energy, caused profits for some companies-especially SMEs-to fall. NBS figures indicate that in July added value completed by enterprises with annual sales revenue of more than 5 million yuan ($729,927) increased 14.7 percent compared with a year ago, or 3.3 percentage points lower than that in the same period last year. For these reasons, consumption, business and income taxes experienced double-digit slides in their growth rates. In July, corporate income taxes decreased 4.2 percent from a year ago, which was 38.7 percentage points lower than the growth rate in the same period last year, and 45.7 percentage points lower than that in the first half of 2008. This was the first time since 2003 that tax revenue growth had fallen sharply.
Liu Shijin, Vice Minister of the Development Research Center of the State Council, told Xinhua News Agency that if economic growth continued to slow down and tax revenues continued to drop significantly in the second half, the state could adopt new regulations to possibly stabilize the economy through tax cuts. Against the backdrop of the global economic slowdown, many countries and regions have announced tax cuts to stimulate their economies. For example, the Korean government put in place a tax reform policy that significantly lowered individual and corporate income tax rates to stimulate personal and corporate expenditures and promote economic growth. The Financial Services Agency of Japan also said on August 26 that it was considering suggesting exemptions from part of the dividend and capital gains tax. At the beginning of this year, the U.S. Senate passed stimulus plan based on a $161-billion tax cut scheme.
Where to cut taxes
Because tax rate adjustments will influence economic benefits not only for individuals and companies, but also the state, tax policy is one of the fiscal policies that concern people most. In China, turnover and income taxes are the two major sources of tax revenue, accounting for about 70 percent. Others include taxes on resources, property and agriculture and tariffs. Turnover tax includes value-added tax (VAT) and consumption and business taxes, while income tax includes corporate and individual income. Turnover tax and income tax are most familiar to the public and are deemed major targets for future tax cuts.
According to the MOF, turnover tax revenue in 2007 accounted for 40.8 percent of the country’s total tax revenue, and VAT accounted for 21.6 percent. Corporate income tax and individual income tax accounted for 19.2 percent and 7 percent, respectively, an aggregate of 26.2 percent. The present Chinese income tax mechanism was formulated in 1993 primarily to increase fiscal revenue. NBS figures indicate that from 1994 to 2007, tax revenues consecutively grew at a rate that doubled the growth of GDP, and were much higher than the growth of per-capita disposable income among urban residents. Therefore, the appeal for reducing income tax has never stopped.
As of January 1, 2008, China adopted a new corporate income tax law that reduced the income tax rate for domestic companies from 33 percent to 25 percent. The MOF and some other government agencies have recently launched some financial and fiscal policies to support the development of enterprises, especially SMEs. These policies include raising the tax rebate rate for some textile products, relaxing credit controls for SMEs and establishing special funds for SMEs. Yang Zhiyong, a researcher at the Institute of Finance and Trade Economics at the Chinese Academy of Social Sciences, told Beijing Review that the reform of corporate income tax has actually begun, and if new tax cuts were implemented, individual income tax is more probably to reduce.
As of January 1, 2006, the individual income tax threshold in China was raised from 800 yuan ($116.79) to 1,600 yuan ($233.58). As of March 1, 2008, the threshold was raised again to 2,000 yuan ($291.97). But with many citizens clamoring for further income tax reductions, the Finance and Economy Committee of the Standing Committee of the National People’s Congress issued a proposal in July to raise the threshold. On August 8, Xu Lianzhong, Division Chief of the Price Monitoring Center of the National Development and Reform Commission, wrote an article on the news website xinhuanet.com, making an appeal for another individual income tax adjustment. Yang said officials should not quibble over the specific level of the threshold when considering further reform of the individual income tax, but they should focus on establishing an adjustment mechanism for the individual tax threshold. They should take into consideration a threshold that is connected to consumer prices, so that growth in tax revenue is in line with citizens’ income levels, he said.
Some experts also have called for transforming the VAT, the country’s largest revenue-producing tax, from a production type of tax to a consumption type. As a kind of turnover tax, VAT levies charges on the newly added value of enterprises but not on the value they have purchased. But in China the mechanism for production-type VAT is adopted. Because it does not allow enterprises to deduct fixed asset purchases, its tax base is larger than the country’s GDP. In the second half of 2004, the government conducted a trial in northeast China to reform the VAT. As of July 1, 2007, the policy was adopted by 26 old industrial base cities in central China. According to the Department of Finance of Anhui Province, the five experimental cities could reduce their tax revenues by 1 billion yuan ($145.99 million) annually.
“VAT transformation reform has been clearly stated by the government and will be spread to the whole country in the second half of this year or next year,” said Liu Shangxi, Deputy Director of the MOF’s Research Institute for Fiscal Science, in an interview with China Economic Times. Liu said the purpose of transforming VAT was to encourage enterprises to upgrade their industrial structure and develop more innovations. By avoiding double taxation, the reform will leave more profits to enterprises. This would be conducive to promoting the growth of SMEs and the economic development of the whole country, he said.
 

—The Daily Mail-Beijing Review Articles Exchange Item

The Zardari-Palin hug & Pak-US liaisons
Wajahat Ali

AS part of her “meet the ineffectual world leaders” parade to miraculously understand the complexities of modern day geopolitics in less than 40 days, Sarah Palin had a lively interaction with recently elected Pakistani president, Asif Ali Zardari, in New York. It’s both surreal and frightening that these two upstart political figures could very well be significant actors in deciding the fate of modern, global relations. It’s fitting that the neophytes met in such an awkward and theatrical fashion. According to the CNN report, upon entering the room filled with sycophantic Pakistani officials, Palin was first slobbered over by the country’s information minister, Sherry Rehman:
“And how does one keep looking that good when one is that busy?” Rehman asked when complimenting Palin. “Oh, thank you,” Palin said. Not to be outdone, Zardari, the widowed husband of the assassinated Benazir Bhutto, called Palin “gorgeous” and then remarked: “Now I know why the whole of America is crazy about you.” Although some of this hyperbolic flattery is common in elitist social circles in Pakistan, one is hard pressed to find the historical precedent for the following exchange. When Zardari’s aide told the two politicians to keep shaking hands for the cameras, Zardari remarked:
“If he’s insisting, I might hug.” Palin smiled politely. Much to Zardari’s dismay, no hug took place. And with his flagrant display of sleaze-ball rhetoric, Zardari unwittingly symbolised the turbulent and twisted relationship between the US and its volatile, erstwhile lover Pakistan. One partner actively and shamelessly covets nearness, while the other selfishly exploits these lustful pangs for myopic policy initiatives. The reader can cast the appropriate roles.
To those following the circus that is Pakistani politics, they undoubtedly know of last year’s power-sharing deal brokered by the US between the then president, Pervez Musharraf and the late Bhutto, who was supposed to become Pakistan’s prime minister. Realising their dictator of choice, Musharraf, was losing sway and popularity, the Bush administration hoped Bhutto would step in, allay growing social discontent, and be a more suitable [read: compliant] partner in the relentless and misguided “war on terror”. The tragic assassination of Bhutto in December unfortunately allowed a power vacuum to develop, one that is now filled by the most unexpected actor: Zardari. In order to facilitate the brokered relationship with Bhutto, Santa Musharraf gave Zardari the best Christmas present of all time in the form of the 2007 National Reconciliation Ordinance. This was a loathsome piece of Machiavellian legislation that granted amnesty to politicians, bureaucrats and political workers accused of corruption, embezzlement, money laundering, murder and terrorism. Naturally, Chief Justice Chaudhry suspended the unlawful ordinance, only to be later suspended himself by Musharraf on trumped up and vague “corruption charges”. Zardari was the most deserving recipient of this delightful ordinance. As of last year, he was embroiled in several, massive corruption cases in more than four different countries, none of which were vague, figments of dictatorial fantasy.
Thankfully for Zardari, Christmas seems to have come twice this year, since millions held in Zardari’s Swiss funds have just been released after the dropped corruption charges, thereby making Zardari one of the richest men in Pakistan. He is unique amongst billionaires for making his magical fortune with no semblance of a legitimate job or a functioning business. It should comfort the US that the Financial Times reported their chosen ally in Pakistan was diagnosed last year “with a range of serious illnesses including dementia, major depressive disorder and post-traumatic stress disorder in a series of medical reports spanning more than two years”. Coincidentally, at this time last year Zardari was supposed to make appearances at a UK court to challenge pending corruption charges against him in multiple countries. Recently, a spokesperson for Zardari rebuffed these assertions and declared him to be fully recovered and well.
Zardari should be heralded as a medical phenomenon and toured across the globe. Who knew the cure for dementia, depression and PTSD was obtaining the post of president of Pakistan? With a deadly terrorist bomb blast at the Islamabad Marriott killing nearly 60 last week and a marked increase in suicide blasts inside Pakistan’s borders, one can only hope the US learns from the error of its siding with thugs, thieves and dictators in Pakistan for the past 30 years or thereabouts. Instead, the administration, and even the Democrats, is now siding with Zardari, who if we were to believe his own doctors, was suicidal and incoherent just a year ago. Yet, we seem doomed to repeat a myopic policy in yet another desperate attempt to aggressively pursue terrorists hiding within the North-West Frontier province Pakistan-Afghanistan border.

—Khaleej Times

The parallel streams of anger
M J Akbar

MANMOHAN Singh said, on his return from France, that incidents in Orissa had shamed India before the world. That is important, but far less important than the fact that the violence in Orissa has shamed Indians in India. I measure what Indians do not by the standards of France, but by the values of modern India, which strengthened the spirit of our freedom movement against Western colonialism and were enshrined in that noble document called the Constitution of India. The Bajrang Dal has shamed India before Indians.
Nicolas Sarkozy lives by French values, which is perfectly reasonable, for he is a Frenchman. But I am a little underwhelmed by the selective secularism of France, which permits schoolchildren to wear a small cross but will not allow a Sikh child to wear a turban or a Muslim to wear a hijab. One can’t complain: If those are the values of the French, they are entitled to them. If Sarkozy wants to hand out medals to Bangladeshi author Taslima Nasreen (now given safe custody in India by Manmohan Singh) that is his privilege. No one has accused Nasreen of being a claimant to the Nobel prize in Literature, but Sarkozy is entitled to the nuances of his critical faculties. Indian prime minister should perhaps be a bit wary of discussing domestic problems on foreign soil. I presume he would not mind, now, if the Arabs raised the killing of Jamia Millia students in Batla House by the Delhi police, or indeed communal riots in which Muslims are victims. Or does he have a separate standard for Arabs and the Organization of Islamic Countries — the French can complain, but not them? The French could not care less about the plight of Indian Muslims, but the OIC might care. France does not even pretend to hide its bias against Muslims: It objects to Turkey’s inclusion within the European Union because Turkey is a Muslim nation. (It must be noted that British policy is quite the opposite; it supports Turkey’s membership.) I imagine that Manmohan forgot to raise the small matter of French involvement in African genocide. Rwanda has just published the findings of an inquiry that claims that France armed, trained and helped Hutu militias that killed 800,000 Tutsis, and those Hutus who gave shelter to Tutsis, in just 100 days in 1994.
The Bajrang Dal’s violence in Orissa shames me because it represents the destruction of the idea of India as shared space for all faiths, with each Indian guaranteed equal rights. This too is a form of terrorism. It has been pointed out that some of the conversion literature distributed by missionaries — for instance, a booklet titled “Satya Darshini”, where remarks have been made about Urvashi, Vashistha and Lord Krishna — is offensive. If that is so, there is a democratic way of addressing such issues. Who gave any fundamentalist the right to rape and kill? Governments that have tolerated this will suffer not only the shame of present censure but also the whiplash of public anger in the next elections.
There is a sullen mood across India, a sense of lowering clouds before a furious storm breaks. Every dimension of anger seems to be clamoring for expression. Secessionists in Kashmir taunt Indians by flaunting the Pakistani flag while the UPA government watches, impotent. There is a growing anger among many Hindus against such secessionist provocation, as well as against terrorists like those of the Indian Mujahedeen who claim to act in the name of Islam: This effortlessly morphs into hostility against all Muslims.

—Arab News