Feb 11 2008
chinese not paying their taxes
I wanted to open up for discussion regarding China tax. I have seen a lot about tax issues related to corporations (e.g., here and here), but nothing involving tax issues for individuals. The WSJ recently had an article about problems with tax collection ( h/t to China Digital Times), which begins:
Surging growth in China’s tax revenues is masking the government’s difficulty in getting individuals to pay income taxes, a problem that could eventually hamper official promises to expand health and social programs.
Years of big gains in the tax take have helped the government increase spending and trim its already small budget deficit, but the increases have come largely from taxes paid by big companies. Last year, a windfall from a transaction levy on China’s booming stock market helped boost the tax take by nearly 30%.
Although finances are sound now, the lopsided structure of China’s tax system could become a challenge if corporate profits weaken, as the stock market has already begun to do. The new spending commitments President Hu Jintao’s administration has been ramping up in recent years will likely require a broader, more stable revenue base. And the ease with which China’s new rich can evade taxes has become politically embarrassing for a government that espouses socialist ideals.
The tax code as I have been able to locate it appears as such from Novexcn but I note that there is nothing here about tax enforcement. Article 1 of the Chinese law reads:
Article 1: An individual who is domiciled within the borders of China or who is not domiciled, but lives within the borders of China for no less than one year shall pay personal income tax on any income obtained from within or outside of Chinese borders according to the stipulations hereof. An individual who neither is domiciled nor lives within the borders of China or who is not domiciled and lives within the borders for less than a year shall pay personal income tax on any income obtained from within Chinese borders according to the stipulations hereof.
The rest of the law sets forth the applicable rate tables (aka “tax brackets”), what counts as income, etc. It reminds me a very simple version of the U.S. federal tax code, which is a behemoth. But nowhere do I see anything on enforcement. Perhaps it is a criminal issue? Either way, unless enforcement is written into the law, China will have this problem.
Of course, even if China can write an enforcement statute, there is no guarantee it will be able to collect. I note the many in the U.S. who evade taxes by dealing with “Cash Only”. This will prove to be a nuisance to the Chinese government in the long run because part of the Chinese way is to get one’s self out of any such obligation.
