From Wall Street Journal:
Surging growth in China’s tax revenues is masking the government’s difficulty in getting individuals to pay income taxes, a problem that could eventually hamper official promises to expand health and social programs.
Years of big gains in the tax take have helped the government increase spending and trim its already small budget deficit, but the increases have come largely from taxes paid by big companies. Last year, a windfall from a transaction levy on China’s booming stock market helped boost the tax take by nearly 30%.
Although finances are sound now, the lopsided structure of China’s tax system could become a challenge if corporate profits weaken, as the stock market has already begun to do. The new spending commitments President Hu Jintao’s administration has been ramping up in recent years will likely require a broader, more stable revenue base. And the ease with which China’s new rich can evade taxes has become politically embarrassing for a government that espouses socialist ideals.
