1. The discussions could be dated back to the early 1960s when the Chinese economy was undergoing readjustment. It was then suggested that the ICTS should be adjusted to squeeze the profitability of enterprises, and the state enterprises should pay a fee for the use of state funds as well. Some of the questions were raised at the first Conference of Fiscal Studies held at Dalian in 1964, but unfortunately were not well discussed. At the second conference, held one year later, tax reform was again referred to in conjunction with price reform. In the 1970s, after a lapse of more than 10 years, discussions about tax reform were resumed sporadically. First raised was the question how to reform the tax system on turnover in correspondence with the changed cost conditions and in the light of industrial reorganization. After 1979 the discussions on the income taxation for state enterprises became very intensive and actually constituted one ingredient of the important policy-mix, augmenting the enterprise's autonomy.

2. See Guojia shuishou (National Taxation) (The Chinese Fiscal and Economic Press, 1979), pp. 20–28Google Scholar.

3. Two important relevant articles are: Zhicheng, Liu, “The ICTS reform in China” (in Chinese), 1980, collected in Zhongguo caizheng wenti (China's Fiscal Problems)(Tianjin Science and Technology Press), pp. 581–86Google Scholar; Liu is the tax commissioner in China. Xu Yi, , “The leverage function of taxation” (in Chinese), 05 1979Google Scholar, ibid. pp. 595–601. Xu is the director of the Fiscal Research Institute of the Ministry of Finance.

4. For one unit of product, P – C = gp, and gp – T = np, where P – selling price, C – total cost, gp – gross profit, T – the tax amount, and np – net profit. Since gross profitability is gp/P = l – C/P, tax rate is T/P, and net profitability is np/P, hence the result.

5. See Muqiao, Xue, China's Socialist Economy (Beijing: Foreign Languages Press, 1981) pp. 146–54Google Scholar.

6. It might be interesting to compare the three approaches with the three different views, as introduced by Fureng, Dong in his article “Some problems concerning the Chinese economy,” The China Quarterly, No. 84 (12 1980), pp. 732–33CrossRefGoogle Scholar.

7. It is composed of four parts: (1) industry; (2) communication and transport; (3) agriculture, forestry, husbandry, and aquatic product procurement; and (4) retail, service and other trades. The first part, which is the most important, is again divided into 30 categories, each corresponding to one kind of industry. Some categories, such as the coal-mining industry, are not sub-divided, so that all enterprises in that industry pay the industrial-commercial tax on their turnover with one uniform rate. But some categories are sub-divided, and to each sub-category there is a different rate. As a general picture, some enterprises pay the tax with one rate, while some others pay the tax with more rates. However, the base of the tax is always the turnover, i.e. the sales of the products or the gross income of services.

8. Yi, Xu, “The relations between public finance, taxation and prices” (in Chinese), 08 1980, in China's Fiscal Problems, p. 740Google Scholar.

9. Ibid. p. 741.

10. Ibid. p. 743.

11. See Chengyao, Wang, “Bring the functions of taxation into full play” (in Chinese), 11 1980Google Scholar; in China's Fiscal Problems, pp. 618–19.

12. Biao, Liu, “Some questions on the reform of the financial management systems for enterprises” (in Chinese), 03 1981. in China's Fiscal Problems, p. 401Google Scholar. Liu is an officer of the Ministry of Finance.

13. Up to the end of 1980, the industrial enterprises that had adopted such a trial system totalled more than 6.600, and their gross production value and profit accounted 60% and 70%, respectively, of the aggregates of all industrial enterprises in the state sector. Ibid. p. 397.

14. See the answer to the second question, “The officials of the Ministry of Finance again answer the questions concerning the changing of profit into tax for state enterprises,” People's Daily, 28 April 1983.

15. From 1979 the pilot experiment of “changing profit into tax” has been carried out in 456 industrial and transport enterprises located in 18 provinces, cities and autonomous regions. See the answer to the first question. People's Daily. 28 April 1983.

16. Muqiao, Xue, “Some suggestions concerning the reform of economic systems,” People's Daily, 10 06 1980Google Scholar.

17. Bingqian, Wang, “Some problems concerning financial work,” People's Daily, 26 11 1982Google Scholar.

18. See the answer to the fourth question. People's Daily, 28 April 1983.

19. See the answer to the third question, People's Daily, 28 April 1983.

20. People's Daily, 3 May 1983.

21. The criteria for state enterprises to be classified as the small-sized are: for industrial enterprises, the original value of fixed assets not larger than 1·5 million yuan, the annual profit not higher than 200,000 yuan; for retail trading enterprises, taking one store as the unit, the number of staffs and workers not more than 20–30, the annual profit not higher than 30,000 or 50.000 yuan. All are based on the data at the end of 1982. Peoples Daily, 3 May 1983.

22. There are eight rates, from 7% to 55%. The highest marginal rate, 55%, is applied to the portion of the annual net income, over and above 80,000 yuan.

23. See the answer to the sixth question. People's Daily, 28 April 1983.