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Chinese Tax Reform Discussions Continue Apace

by Mary Swire,, Hong Kong

20 December 2001

Following a report issued by ABN Amnro last week which recommended urgent tax reforms in China, the authorities have revealed that there are several proposals under discussion which could be ready for implementation soon.

The global bank's report suggested that: 'China needs a clear and transparent taxation system, which is able to optimise the distribution of income between the government (central and local government) and individuals,' and warned that major changes to the taxation regime would be necessary following the country's recent accession to the World Trade Organisation.

Figures released for the first seven months of this year have shown that individual income tax revenue rose more than 50% to 54.7 billion yuan (US$6.58 billion). However, despite this bumper collection, the government has revealed that it intends to amend the tax free income bracket from its present level of 800 yuan (US$96), which was set in 1981, when the living standards of ordinary Chinese citizens were very low. Economists believe that a threshold of around 1,500 yuan (US$180) per month would be more appropriate to the changed circumstances in China.

The state authorities have also made it clear that personal income tax will not form the main source of government revenue under the amended tax regime, and that family circumstances will be taken into account when determining the levels of taxation.

Meanwhile, local governments in Guangzhou and Beijing have announced that they will be keeping a close eye on the country's wealthiest citizens, including athletes, film stars, highly paid professionals, business owners and contractors, in order to 'catch the big fish' who practice tax evasion. It is understood that a list of Chinese citizens and residents falling into the spotlighted categories of employment will be drawn up in Guangzhou by the end of this month.

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