China Not Ready For Inheritance Tax Says Vice-Finance Minister

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

13 March 2003

Chinese Vice-Finance Minister Liao Xiaojun has said that China is not ready for the implementation of an inheritance tax system, reported the People's Daily.

Speaking at the 10th National Committee of the Chinese People's Political Consultative Conference (CPPCC), a top advisory body, Liao asserted that at present, such a measure would do more harm than good to the Chinese economy, refuting an idea put forward by the China Democratic National Construction Association on the income redistribution policy.

The reasoning Liao used to defend his judgement was the fact that the assets of most private entrepreneurs in China are used to build up capital value in their businesses. He said that in most other developed countries, such capital was exempted from inheritance tax or received some form of tax break. The imposition of such a tax measure in China, he reasoned, would affect economic growth and lead to capital outflows. This would in effect be stunting the growth of China's developing economy.

Also cited was China's incomplete asset registration and declaration records, which would make the collection of inheritance tax very difficult, if not impossible.

However, whilst addressing the conference, Liao turned his attention to personal income tax, and in particular tax rates for high earners. This, he said, was an area where there was scope for raising additional revenue by the closing of tax loopholes for big earners and individual investors, as well as cracking down on tax evasion schemes. This is likely to be a popular measure across the country.

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