China's High-Earners Spurn Tax-Collectors

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

04 April 2007

China's State Administration of Taxation said that as of last week only 1.37 million people had filed tax returns out of the estimated 7 million high-income earners who ought to have filed by the deadline of 31st March and out of an estimated total of 75 million taxpayers.

Last November, China's tax authorities had announced that high earners, including foreigners, will be required to report their income directly to the tax authorities as the government sent a strong signal that tax avoidance will no longer be tolerated.

According to a statement posted on the website of the State Administration of Taxation, the new requirement applies to individuals who earn more than 120,000 yuan (US$15,000) per year.

Taxpayers must report salaries, dividends from bank accounts and other investments and gains from property rentals, to authorities within three months after the end of each tax year under the new rules.

Those receiving foreign source income, multiple sources of income or who are not paid directly by an employer have to declare income immediately upon receipt.

Even individuals whose tax is deducted at source by their employers but who meet the new criteria have to declare their income under the new system.

The SAT says that the new rules are designed to make it harder for individuals to hide income through various loopholes in the tax laws: "Many higher-income individuals in the country earn incomes through a variety of channels, and some of these channels are not public; so tax authorities often have no record of the earnings."

Despite its difficulties with tax evasion, China set another annual tax collection record in 2006 with tax revenues collected surpassing the previous year's level by 22%, following the 20% gain seen in 2005. It is believed that taxes collected from private businesses have been growing especially fast. The Chinese economy is estimated to have grown by 10% in 2006.

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