A unified rate can cure taxation woes

The widening income gap has to be bridged. One way of doing it is to substantially raise the threshold of personal income tax. That, say many experts, will ease the economic burden of medium- and low-income people, who earn about 2,000 yuan ($293) a month. The authorities, too, have discussed the idea while drawing up the country's tax reform plan.

Theoretically, however, imposing progressive tax rates would be a perfect solution to the problem of unequal wealth distribution, which has given rise to many a social problem. But ask Mao Yushi, the founder and chairman of the board of Unirule Institute of Economics, and he will disagree.

There are two types of taxes: direct and indirect, says Mao, one of China's most famous economists, known especially for his essay, Speak for the Rich and Work for the Poor. Direct tax means tax on actual income. Indirect tax means paying tax on the goods one buys and the services one avails of. In China, indirect tax is included in the prices for goods and service charges.