On The Taxation System For Loan Losses Of The Commerical Banks In China

The sub-loan financial crisis happened in 2007 in the United States has caused the global turmoil, and it has caused tremendous economic impact to each member in the world, which aroused concerns of the banking business. Bank loan losses are the largest operational risks and the loan losses caused the loss of bank assets, which would also affect the bank's cash flow, resulting in the deterioration of the financial position of banks. In order to promote the healthy operation, all of the countries are striving to adjust the taxation of the banking, which could reduce their losses and enhance their power of competition. The tax system of bank-loan losses shall regulate banks and exert its policy guidance functions on them. The establishment of the banking system for loan losses should be based on the principle of tax neutrality, and the best time for loan losses should be the time of the net of bank loan losses happens, so as to guarantee the nominal tax rate in line with the actual ones. For the purpose of adapting to the changes in domestic and international situations, China also has taken a great deal of measures to solve the problems arising out of the banks' bad assets and has made some adjustments to the tax system. But compared with international practice, the tax system in China can not satisfy the need of steady and healthy development of financial enterprises in the country but rather aggravates the banks' burden of taxation. Therefore, it is necessary to reform and improve the tax system of bank-loan losses in China. Bank loan loss tax system deals with specific methods for loan losses and the reserving of write-off method and the adoption of these two methods and other legislations are widely used in the countries of the world. We can see a special reserve tax laws which is more in line with the principle of neutrality, and it is in line with the international trend in favor of bank loan loss provision that is established to enhance the capacity responding to the risk. The method of tax disposal under the current tax system is the combination of the method of general reserve and charge-off.At present, our country's lose of the tax system of bank loans are generally ready to implement the Act, and China's commercial banks have non-performing provision for loan loss write-off which should not be changed timely. Through the banking system for loan losses analysis of our country, we can see there are some problems in our country's banking system for loan losses: firstly, it is contrary to the principle of neutral revenue, and over-taxation of commercial banks. Secondly, the discounting of the effect of loan loss reserve ratio is too low which increases the tax burden of banks. Thirdly, loan losses and write-off criteria are too strict and cumbersome. Through the above analysis, and combined with China's banking industry practice, it is recommended to do the following reform: firstly, change the tax treatment of loan-loss methods, and start the use of a specific reserve law. Secondly, improve the loan loss ratio of pre-tax deduction. Thirdly, relax the doubtful standards, and to simplify the procedures for writing-off.