The Real Challenges of Fiscal and Tax Reform How to change from indirect taxes to direct taxes

1) Compared with developed countries, the obvious feature of the tax structure of developing countries is that indirect taxes are the mainstay, which generally accounts for 60%-90% of the total tax revenue, which is determined by the subjective and objective reasons of developing countries.

First of all, the level of economic development and per capita income of developing countries is also low, and if we reluctantly implement a tax system with income tax as the mainstay, it will inevitably lead to a large loss of tax sources, and it will be difficult to ensure the needs of the state finances.

Second, the turnover tax is easy to collect and manage, and is not affected by the profit and loss status of enterprises, which is more suitable for the current level of management in developing countries.

Third, the turnover tax is levied on an ad valorem basis, which does not directly affect the income of enterprises and individuals, and has little impact on private investment and personal savings.

2) The tax system of developing countries with indirect tax as the main body, with the development of the domestic commercial potato economy, has exposed its drawbacks, and many countries have begun to take corresponding measures, so there are some new trends in the development of the tax system. First, in order to overcome the drawbacks of double taxation of full turnover tax, which is not conducive to professional cooperation, the implementation of value-added tax has begun. However, the full implementation of value-added tax requires a sound tax registration system and financial accounting system; A high level of tax administration is required, which is not yet fully met in many developing countries.

Second, in order to open up new sources of taxation, we should gradually expand the scope of direct taxation, which is mainly income tax. However, the imposition of income tax in developing countries is inevitably constrained by low levels of corporate profits and low levels of per capita income.

Taxation is divided into direct tax and indirect tax based on whether the tax burden can be passed on, but the views are not consistent. Some people interpret from a managerial point of view that a tax levied directly on the ultimate taxpayer is a direct tax, while a tax levied through a third party (e.g. a wholesaler) is an indirect tax. According to this interpretation, income tax is a tax levied on the person who obtains the income, and it is called a direct tax without going through a third party; Value-added tax and consumption tax are not levied on consumers but pass through a third party, and these taxes are indirect taxes.

There are also people who take the intention of the legislator as the criterion, where the tax burden is not directly borne by the taxpayer, but can be smoothly passed on to others, these taxes are indirect taxes; The intention of the legislator is to make the taxpayer of a certain tax, that is, the actual burden of the tax, unable to pass it on to others, a direct tax. This classification method is actually a subjective judgment, and the legislator cannot expect what taxes can be passed on, some of which are expected to be passed on cannot be passed on in practice, and some of which are expected to be passed on can be passed on. There are also those who use the source of tax as a criterion, and those who are taxed on income are direct taxes, while those who are taxed on expenses are indirect taxes.

According to this division, income tax is a direct tax and consumption tax is an indirect tax.