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Comment by oh-kumudo | Hacker News Reader

I don't think I can directly answer your questions, but few facts:

1. Chinese enterprises have really high taxes.

2. China has VAT, which is 16%, quite significant.

3. Chinese consumption tax directly factored into the end product price, everyone is paying taxes everyday, they just don't feel it.

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The Chinese government also has other sources of income:

1. Land sales. This is a major one especially in big cities

2. State-owned enterprises. These are immensely profitable because they are often oligopolies. Imagine the US government owning Goldman Sachs, Morgan Stanley, AIG, Citigroup, Bank of America, JPMorgan Chase, Wells Fargo, Fidelity, AT&T, Verizon, Comcast, T-Mobile, Exxon Mobile, Chevron, ConocoPhillips, Philip Morris, etc etc

There is also a big distinction as regards to which tax goes to central government which goes to local(provincial) government. I believe the land sales mainly goes to the latter, while VAT is split between those two.

Not all SOEs are profitable, especially those typically owned by local governments. Some of them only survive through continuous loans. Anyways, SOEs that are profitable try to keep as much of their profits as they can through various games.

Exactly.

People forget that high levels of income tax in the western world is actually a fairly new thing.

Denmark for example introduces income tax withheld by the employer in 1970 (kildeskat).

Before that the situation looked much more like China today. And the size of the Danish public sector was much smaller.

Finally, someone knows the history and common sense.

The income tax history is really short. Even in US, the income tax was not significant until recent 50-70years. https://en.wikipedia.org/wiki/File:Federal,_State,_and_Local...

The China economy is behind US probably 20-30 years. Its GDP is large because its population is huge.

Why the Economist publishes this kind of low-level article?

Based on your graph the income tax became significant in 1943, which was 75 years ago. It was significant in France 30 years before that and in Germany and the UK 100 years before that.

This is actually pretty old and much earlier in development than what China is at right now.

Important elaboration: kildeskat ("source tax") changed when and how the income tax was collected, from being something done privately and retrospectively for the previous year, to being something your employer takes care of before paying you, thus increasing collection efficiency. It also significantly simplified calculation.

It did not introduce the concept nor change the size of income tax, which some might interpret the comment as stating.

Britain introduced an income tax in 1842 I believe. It was supposed to be temporary.

1799 originally, as a temporary tax to help pay for the Napoleonic Wars.

Yes but that time it actually was introduced temporarily. The date I gave was when it was introduced permanently.

Nothing is more permanent than a temporary solution.

I hope at some point people smarten up and realize that "temporary" government revenue streams are never really temporary.

1- and this is precisely my point. If they start enforcing it, it would kill the smaller businesses in the current situation - and probably put thousands (millions?) of people in the street.

China is an interesting case. Where they are not enforcing it in a strict sense, but at the same time they are not completely leaving the regulation on the book. So the end result is a system that selectively enforcing its own regulations. In short, everyone is violating the regulations in some sense, but if the government doesn't come to your door, you are probably fine. But they would start campaigns now and then to check upon on you, and once they do, and you are not prepared, you probably will end up in trouble.

I too wonder how well such system works, but I guess China is in high growth mode for many many years, and we all know that growth can cover up problems. Once it slows down, it might be the beginning where things start to get interesting.

This is also known as rule by law, where laws are selectively enforced to rule the people, vs rule of law, where the goal is to enforce laws uniformly to protect the people.

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