China Begins New Tax Crackdown On High Income Professionals

by Mary Swire, Tax-News.com, Hong Kong

23 September 2005

China's tax authority is intensifying its efforts to crack down on high income individuals in several categories, including investors and those employed by foreign-invested and multinational companies, as part of a campaign to make the tax system more equitable and consistent.

The announcement, which appeared on the State Administration for Taxation's website on Wednesday, indicated that foreign entertainers working in China, private investors, employees of foreign-backed firms, and foreign-invested companies in the finance, insurance, securities, tobacco, petrochemical and civil aviation are all to be targeted under the new crackdown.

The administration has issued instructions to tax collectors to: "select a certain number of people from among those who have more potential impact on tax collection and carry out rolling audits."

The move comes shortly after the Chinese government approved a draft amendment to the income tax law exempting those who earn less than 1,500 yuan ($185) per month from income tax, up from the previous monthly income threshold of 800 yuan. As economic growth rates continue to soar, the government has been growing increasingly concerned about rising inequality in wealth in a country where the average annual income is currently about $1,000 per capita.

A previous crackdown on high income earners in 2002 resulted in many arrests and several prosecutions, most notably that of the actress Liu Xiaoqing, who was reportedly forced to pay a back tax bill of 16 million yuan to secure her release from prison after a one-year spell in detention.

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