"The problem with China's current taxation policy is that it first collects taxes and then distributes them in the form of subsidies to businesses or low-income groups in time of difficulties," said Zong. "Why not reduce the tax and give the money directly to low-income employees?"

With higher incomes, people will spend more, he argued, adding: "Of course, the government should also strive to build a better and more comprehensive social security network to provide the public with a level of confidence and ensure that money from higher incomes is not simply salted away in the bank for times of need."

"China can sustain rapid economic growth for the next two or three decades if it manages to spur its own population to spend actively," Zong said.

On the other hand, with a lower tax burden, companies will have more money to invest in technological innovation and product upgrades, which will enable them to expand business and in turn create more jobs, according to Zong.

"China is now largely a world manufacturing workshop of cheap and low technology products which generate only marginal profits. Therefore, companies need to attach more attention to technological innovation and climb up the manufacturing chain," Zong said. "When businesses grow, the whole economy will certainly expand and fiscal income will not fall in spite of lower tax rates."

Zong also proposed to levy a sales tax on everyday goods, without saying what the specific tax rates should be. "With higher incomes, people will tend to ignore any slight increase in their shopping bills. But it could mean a big boost to the country's fiscal income, as China has a large population."

China currently only levies sales tax on a limited list of items, including tobacco, cosmetics, and top-end products like yachts and other such luxury items.

(China.org.cn March 8, 2009)