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UPDATED: April 24, 2010 NO. 17 APRIL 29, 2010
Is Social Security Tax Feasible?
 
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Under China's current social security system, some private enterprises and foreign-invested companies can evade paying for employees' social security. Employees sell their youth and future together to employers, but their employers do not pay anything for it. As a result, these enterprises' production costs are artificially low. This unfair competition will put state-owned enterprises in an unfavorable situation, as they always take responsibility for their workers' social security. Meanwhile, when a foreign-invested company exports to the rest of the world, it can sell products at lower prices. In this way, the value created by the Chinese labor force is transferred abroad without any payment. If the premiums are transferred into tax, state-owned, private and foreign-invested companies will all have to compete on an equal footing. At the same time, China retains the value created by the Chinese labor force within the country.

Social fairness first

Han Lei (Commercial Times): Theoretically speaking, the proposed tax could provide migrant workers with better social security guarantees, but its effect in practice is still unknown. We don't know whether such a tax will really ensure basic welfare for average people or overcome disparities in urban and rural income levels. In fact, the fuel tax that replaced the road maintenance fee last year has failed to reduce drivers' traveling costs. In this sense, levying certain types of tax does not necessarily entail corresponding interests or benefits for taxpayers.

We all know taxpayers are entitled to certain rights while paying tax. But the dearth of monitoring will make things different. There is still not a government body or a law to protect taxpayers' rights to social security benefits in China.

In welfare states, people need to pay little or nothing for their education, medical and pension benefits. In China, we have to pay the high social security tax without corresponding welfare in return. This is one of the reasons why people are worrying about the tax's implications.

The essential function of the social security tax should be narrowing gaps in income distribution. But more and more people are worrying about the gap will grow greater. For middle- and low-income earners, social security and housing provident funding account for a large part of their income. If a social security tax is levied, average people might see a higher tax burden.

Deng Haijian (Chongqing Times): The major public concern about the collection of social security tax is whether it will increase the burden on average people. Some experts and scholars say there is no need to worry, while Yang Zhiyong, a researcher at the Chinese Academy of Social Sciences, reminds us of a higher tax level as a result of social security tax. "Tax is more compulsory than fees, which will probably increase the burden on average tax payers," said Yang.

What's more, the tax will be mainly levied on the payroll. For low-income earners, the social security tax will consist of a higher percentage of their income than high-income earners. Obviously, this is not what we want to achieve by levying the social security tax.

An online survey found that 70 percent of respondents are against the social security tax. In this sense, we need more public involvement in deciding whether to levy such a tax since it is a matter of social fairness.

Fu Ruisheng (Qianjiang Evening News): At present, China's civil servants don't pay pension and medical insurance premiums. In addition, the pension program does not cover most farmers. It is said that the social security tax will not change the situation.

The basic attribute of a taxation system should be its universality and fairness. In countries with developed social security system, the social security tax is levied on all people with income there. In these countries, the use of social security tax revenue is also clearly stipulated in the law. In China, however, the Law on Social Insurance is still in the pipeline. Without legal guarantees, the fairness of social security reform will always be challenged by the public.

Sun Zhong (China Audit News): To levy the social security tax is technically feasible, but we need to be careful about increasing the burden on low-income earners and increase the income gap.

The state should change the ways and channels of levying social security tax. For example, the tax should be based on total income—including property income and non-work income—rather than just the payroll. What is more, the social security tax could be partly deducted from individual income and enterprise business taxes. In a word, various ways should be tried in efforts to broaden sources for social security funds.

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