China's Tax Receipts Benefit From Crackdown On Wealthy

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

30 September 2002

After China's tax collectors targeted high-earning individuals, foreigners, and other prominent figures for tax audits, unofficial reports from the State Administration of Taxation say that under-reported tax payments of 15.17 billion yuan (about US$2bn) have been recovered in the first eight months of this year.

In July Premier Zhu Rongji he couldn't understand how the richest 100 people in China managed to avoid paying virtually any tax, and strongly supported the campaign against tax dodgers. A couple of high-profile arrests followed, including those of top film star Liu Xiaoqing and Hong Kong's Johnny Sze Tsang-fai, a former chairman of locally-listed Global Tech (Holdings), a mobile phone handset distributor with a China operation.

A row was sparked off when figures published in the Worker's Daily led taxpayers on the Chinese mainland to complain that the country's tax system is weighted in favour of the wealthy and famous. The newspaper revealed that more than 60% of personal income tax collected is paid by workers earning average wages, while high income earners contribute less than 10%, despite holding some 80% of the 8.3 trillion yuan (US$1 trillion) currently saved in the nation's banks.

The newspaper estimated that tax dodgers cost the economy around 100 billion yuan in uncollected revenue every year.

Although only 15% of the government's total tax revenue comes from personal income tax, the 15 billion yuan recovered would represent about 10% of income tax receipts, which have themselves increased by 24% over the comparable period last year. Overall tax revenues rose 11% during the 8 month meriod.

As part of the mainland's drive to become more systematic in its tax colllection, and to crack down on tax evasion, the Tax authority has decreed that as from October, some 300,000 of the country's top wage-earners will be required to fill out income tax returns, as well as contributing to the government's coffers via their employers.

Individual income tax in China is paid on a scale rising to to a maximum of 45 per cent, while enterprise income tax is 33 per cent for local companies and 15 per cent for foreign firms. There have been persistent hints that the Government is planning to level up the regime for foreign and local companies after its WTO entry.

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