Tax Reform in the United States: Implications for the People’s Republic of China | Asian Development Bank

Tax Reform in the United States: Implications for the People’s Republic of China

Publication | September 2018
Tax Reform in the United States: Implications for the People’s Republic of China

This brief recommends that the People’s Republic of China continue to improve its business environment and broaden its tax base, in response to major tax reform in the United States.

The Tax Cuts and Jobs Act of 2017 was the first major tax reform in the US since 1986, with potential spillover effects reaching far beyond the US borders. This tax reform package makes fundamental changes to four major components in the US tax laws: individual income tax, corporate income tax, pass-through entities tax, and estate and gift tax.

The act aims to achieve four objectives: (i) simplify the tax code, (ii) give American workers a tax cut, (iii) create more jobs by leveling the playing field for American businesses, and (iv) bring back trillions of dollars that are currently kept offshore for reinvestment in the American economy.

Key Points

  • The Tax Cuts and Jobs Act of 2017 is the first major tax reform in the US since 1986. Its potential spillover effects can reach far beyond the US, and could lead to (i) shifting of short- to medium-term capital, (ii) motivating other countries to reduce corporate tax rates, (iii) creating more demand for imports to the US as a result of stimulating the US economy through tax cuts, (iv) eroding the individual tax base of other countries, and (v) eroding corporate tax base of other countries.
  • As corporate tax is already low in the PRC, the country should not join the tax competition. Instead, the PRC should continue to improve its business environment to attract foreign direct investment. On the individual tax front, the PRC should continue with efforts to broaden its tax base.