China Continues To Debate Merits Of An Inheritance Tax

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

04 November 2004

With the rapid pace of economic growth adding to the ranks of China’s wealthier classes, the debate amongst observers and academics continues on the merits of the introduction of an inheritance tax, China Daily reports.

One advocate of an inheritance tax, Wang Minggao, a social scientist and expert on property and anti-corruption, cited economic data revealing that 60% of the country’s private deposits are in the hands of 20% of the population, with one million families said to possess assets worth more than 1 million yuan (US$121,000).

"The economic climate is such that it favours introducing inheritance taxation," he stated, according to China Daily.

Other advocates of an inheritance tax argue that most wealthy Chinese citizens are able to circumvent current income tax rules, and the levying of death duties will reduce the incidence of tax evasion.

"The government now mainly relies on an income tax to adjust private income, but many rich people have found ways to evade taxes due to loopholes in the legal system," noted Huang Xun, a law professor at Xiamen University.

However, with a per-capita GDP of $3,000, some argue that China is not yet ready for an inheritance tax, which should be considered when the nation is more prosperous. The cost of implementing and administering the tax is also deemed by some to be prohibitive.

"Rich people often have various forms of assets including cash, deposits, real property, securities, etc. It would be costly to uncover all these assets and estimate their value accurately," observed Dai Peng, an economist at the Institute of Finance and Taxation of Renmin University of China.

The Chinese leadership in 1996 made the introduction of a gift and inheritance tax a long term goal, although no timetable has been set to achieve this target.

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