China to Consider Raising Taxes for the Rich

Original source: Global Times

A reduction in personal income tax alone is not enough to narrow the widening gap between rich and poor in China, experts said on Monday.

The government should also tax rich people’s capital gains and other forms of non-salary income and reduce indirect taxation, tax specialists told the Global Times.

Today is the last day of a National People’s Congress initiative to solicit public opinion on a proposal to reduce personal income tax.

The proposal increases the level at which income tax begins to be deducted from monthly salaries to 3,000 yuan ($463) from 2,000 yuan. The proposal also reduces the number of tax rate brackets to seven from nine.

Personal income tax receipts will fall by an estimated 120 billion yuan annually after the new law is passed.

Though many people on lower incomes may benefit from the tax reductions, the reform would not narrow the gap between rich and poor, Edmund Yang, tax partner with PricewaterhouseCoopers China, said.

Apart from tax reductions for low-income people, China’s tax authorities could also strengthen supervision of high-income people to ensure they comply with current tax regulations, Yang told the Global Times.

In China, many high earners such as business owners may declare very low salaries but also help themselves to company revenues and write the cash off on balance sheets as expenses.

By doing so, business owners can evade both salary tax and also corporate tax, said Yang Zhiyong, a senior researcher for Institute of Finance and Economics with Chinese Academy of Social Sciences (CASS).

Such fraud is very difficult for tax authorities to track, Yang said.

“Many high-income people’s major source of income isn’t from salary but capital gains such as stock trading or buying and selling properties. China lacks a comprehensive data source sharing system among different authorities,” Liu Fei, a partner with Beijing-based Adfaith Consulting, told the Global Times.

Tax authorities may not have access to information about rich people’s capital gains, Liu said.

Residents also evade tax because the burden from indirect taxation is high, including value added tax, corporate and consumption taxes, he said.

Personal income tax only accounted for 6.6 percent of the State’s total tax revenues in 2010, but value added tax, consumption tax, tariffs and corporate tax together accounted for about 70 percent of the country’s tax revenues, said Yang from CASS.

China should reduce indirect taxation rather than simply lift the tax threshold for salary earners, he added.

Post your comment

Comments are moderated. See guidelines here.


No one has commented on this page yet.

RSS feed for comments on this page | RSS feed for all comments