Chinese Introduce Taxpayer Ratings As Zhu Criticises Rich Tax Evaders

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

03 July 2002

Meeting top economists last week after newly-released figures showed a drop in monthly tax collections, Chinese premier Zhu Rongji attacked rich people who don't pay tax. Last year he ordered an investigation the country's top ten richest people, as listed in Forbes Magazine, and, said Zhu: "The result was that they had not paid. The reason was that they had included their personal income in that of their factory and their wages were included in the factory's pre-tax expenditure."

"Why do some rich people not pay?" asked Zhu. "This is not normal. If the government has no money, how can it do anything? Personal income tax should be paid. My wages exceed 800 yuan [a month], so I pay," he said.

Hu Angang, a professor at Qinghua University, said that most rich people manage to avoid paying tax. He said that personal income tax collections in 2000 had reached a mere 51.1 billion yuan, only 0.6% of China's GDP, far below the levels of 5 - 10% normal in advanced economies, and well below average even for a poor country.

The Chinese State Administration for Taxation announced at the weekend that it intends to introduce a 'credit rating' scheme for taxpayers in order to stamp out tax evasion practices which are becoming increasingly rampant.

The tax authority announced that taxpayers with good records will be rated as 'A', which will entitle them to tax perks. Category 'C' taxpayers, however, will be subject to warnings and penalties.

Tax experts have suggested that although - in and of themselves - the new measures are likely to have some effect on the levels of tax evasion on the Chinese mainland, perhaps a more important factor is the Tax Bureau's plan to share this information with other government and social organisations.

The State Administration for Taxation also announced recently that provisions will be added to the tax system in the near future which will mean that the burden of proof is on the tax service to prove that the taxpayer is guilty of non-payment of taxes, rather than the other way around.

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