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China considers social security tax

0 CommentsPrint E-mail CCTV, April 4, 2010
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China is considering levying a social security tax to replace the current social security fee.

The Ministry of Finance announced this week that the government is assessing the feasibility of collecting a new payroll tax for social security. It aims to replenish the all-important, but under-funded pension accounts.

China's social security is funded by the government and enterprises, as well as workers who pay a social security fee. The network includes pension insurance, basic medical insurance and unemployment welfare benefits.

The current social security fee collecting system is administered by a social security fund and provincial governments. However, its limited capacity restricts it from covering all citizens.

The proposed social security tax would introduce compulsory contributions and broaden the resources for the social security fund. The tax system would be solely administered by the central government. It would also pave the way for coverage for migrant workers.

Experts stress the tax must have a transparent collection method.

Cao Jianhai, researcher of Indust. Economy Research Inst., CASS, said, "Ordinary Chinese people may worry that this tax will increase their burden. If supporters of the tax claim it will not increase their burden, they should make the tax transparent in its collection methods to ease public concerns."

Cao added that the government should fully consider public opinion in the decision-making process. He also said the option of reallocating revenue from current taxes should not be ruled out.

Cao Jianhai said, "Currently, China's macro tax burden is comparatively heavy. If we introduce a new tax, many people will not agree. It should be an adjustment of current tax and fees. China's commodity turnover tax accounts for the bulk of overall tax. I think we should transfer some part of this revenue to the social security account to mitigate the deficit of social security fund."

Social security taxes have been successfully implemented in more than 130 countries. It is seen as fulfilling a significant role in improving a country's social security net.

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