China Taxation: Interpretation

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China Taxation: Interpretation

An

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Chapter 1An Overview of Taxation
INTRODUCTION
The People's Republic of China has established what is perhaps the most sophisticated and complex taxation system in the world today. This system of taxation has an impact on almost every business and investment decision. Decisions a business enterprise must make, such as the form it will take (i.e., sole proprietorship, partnership, or company), the scope and nature of its operations, and the manner in which it will be terminated cannot be made without consideration of the tax consequences. The purpose of this book is to introduce the reader to the People's Republic of China taxation, including Enterprise Income Tax, Individual Income Tax, Value-added Tax, Business Tax, etc. A corollary objective of the author is to aid the readers in the development of their tax awareness (i.e., ability to recognize tax problems, pitfalls, and planning opportunities).Such awareness is not only an important attribute of accountants and lawyers—it is essential for everyone who chooses a career in business.

1.1 THE NATURE OF A TAX
A tax is a levy imposed upon a taxpayer (an individual or legal entity) to support the government, anyone who failure to pay it would be punished by law. Thus, what a tax does is to provide a means through which the government derives a majority of the revenues necessary to keep the government in operation. A tax, however, is not merely a source of revenue. As discussed in a later section of this chapter, taxes have become a powerful instrument that policymakers apply to attain justice objective as well as economic objective. A tax normally has one or more of the following characteristics: (1) There is no direct relationship between the exaction of revenue and any benefit to be received 1

by the taxpayer. Thus, a taxpayer cannot trace his or her tax payment to an armored car, a highway, a weather satellite, or any of the myriad expenditures of government. (2) Taxes are levied on the basis of predetermined criteria. In other words, taxes can be objectively determined, calculated, and even planned around. (3) Taxes are levied on a recurring or predictable basis. Most taxes are levied on a monthly basis or an annual basis, although some, like the Land Appreciation Tax, are levied only once. (4) Taxes should be distinguished from fines or penalties. A fine or a penalty is a measure, which is specifically designed to control or stops a particular activity. For instance, at one time the department of human resources and social security imposed a charge on the products of child labor. This charge was specifically aimed at stopping the use of children in manufacturing and thus was a fine instead of a tax. Also, taxes can be distinguished from licenses and fees are payments made for some special privilege granted or services rendered. The major types of taxes imposed by taxing authorities within The People's Republic of China are discussed later in other chapters. As will be noted, one or more of the above characteristics can be found in each of these various taxes.

1.2 THE OBJECTIVES OF TAXATION
In subsequent chapters, the specific provisions that must be followed to compute the amount of tax payable will be discussed in detail. Some may view this discussion as a hopeless attempt to explain what seems to be an endless barrage of boring rules—rules that, despite their apparent lack of “rhyme or reason,” must be considered if the final tax liability is to be determined. We may often feel frustrated that the rules of tax law are not completely founded when studying. However, each provision of the tax law originated with some objectives. The knowledge of the objectives underlying a particular provision is an important first step toward a comprehension of the provision. In studying taxation, it becomes apparent that many provisions have been enacted with similar objectives. The following discussion reviews some...
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