China Cracks Down On Income Tax Collection

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

31 July 2002

Chinese tax authorities are cracking down on very low levels of income tax collection; although the amount taken in so far this year is well ahead of last year, State Administration of Taxation statistics show that personal income tax accounted for only 6.6% of tax revenue last year, compared with 20% in many developed countries.

The authorities are beginning with 'soft' targets such as the employees of foreign companies - about 3,200 Beijing representative offices of foreign companies have conducted "self-examinations" concerning the payment of tax by their staff. The Beijing municipal government tax bureau said staff at some representative offices of foreign companies were found to have delayed payment of personal income tax, mainly due to a "misunderstanding of tax law".

"Thirty-four per cent, or 1,100 offices, found problems of varying degrees in the self-examinations," said tax bureau sources, and, as a result, 63.56 million yuan (about $10m) in personal income tax arrears had been paid so far. The source said that the self-examinations would last until September, after which spot checks would be carried out by the authority.

The problem of non-payment is however very widespread - the Beijing municipal taxation department says that there were at least 200,000 enterprises in Beijing whose employees paid no individual income tax last year. In the first half, Beijing city government conducted spot checks on more than 7,166 taxpayers, retrieving individual income tax worth 950 million yuan ($150m).

Prominent people are coming under particular scrutiny, including football players, film stars and foreign businessmen: well-known film actress Liu Xiaoqing was arrested last week by Beijing police over suspected tax evasion by companies she runs.

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