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China moves to cut manufacturers' costs

Reporter: Yang Chengxi 丨 CCTV.com

12-27-2016 01:05 BJT

The leader of China's largest car glass maker -- Fuyao Group CEO Cao Dewang -- has found himself at the epicenter of a heated debate about the tax burdens of Chinese companies. 

The debate erupted when Cao announced that his company would spend 1 billion US dollars to move its glass business to the US because American taxes on manufacturers are less than in China.

The debate comes as Chinese manufacturers struggle to survive and the government is attempting to rejuvenate the sector. What is the real situation about taxes in China and the US?

Experts say that when talking only about manufacturing, companies in China face higher taxes because of different tax systems.

"In the United States, a tax, both to individuals and companies, is imposed on income. Those tax rates are generally very high. But China imposes direct taxes, or value-added taxes," said Zhang Lianqi, auditing expert.

The U.S. collects more taxes from households and individuals than in China, but less from companies. That's why companies feel less of a tax burden in America. In China, the VAT is the biggest tax category.

"Turnover tax dominates China's taxation system. Each company in the business chain needs to pay VAT. But most of the tax will turn into prices and transfer to customers. But sometimes it is hard to transfer," said Zhang Bin, Dir. of Taxation Research Office, National Academy of Economic Strategy, CASS.
 
In fact, China replaced its business tax with a value-added tax in May in a move to lower companies' tax burdens. It's estimated that 2016's tax cuts could save Chinese companies more than 470 billion yuan. But analysts also point out that cutting taxes isn't enough to lower companies' operating costs.

"Manufacturing companies are suffering great burdens, not only from taxes, but also from comprehensive costs, such as trading costs, land, electricity, logistics and human costs," said Zhang Lianqi,auditing expert.

Analysts say those fees offset the impact of tax cuts in China, and the country should lower the comprehensive costs of companies to ease their operational burdens.

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