Chinese People More Aware of Paying Taxes

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Last updated at: (Beijing Time) Wednesday, October 16, 2002

Chinese People More Aware of Paying Taxes

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"I never felt I was a taxpayer as definitely as I do now," says Hu Fengwu, owner of a small fashion firm.

Though a fashion designer for 30 years, she had no contact with tax authorities until she quit and started up her own business.

On Tuesday China began implementing detailed rules, issued last month, for the law governing tax collection supervision and administration. The move spearheads a tougher campaign against illegal tax evasion and a greater awareness of paying taxes among the Chinese.

About a decade ago, however, the term taxation had little relevance to most Chinese people, who were forced to pay taxes only on their bicycles. Nowadays, taxes are being levied on salaries, interest earned from savings deposits and on home buying.

In Shanghai, east China's largest metropolis, some white collar employees working for foreign-funded companies now have to subtract 1,000-2,000 yuan (120.48-240.96 US dollars) from their monthly earnings to pay individual income tax. They are getting used to countering questions about their income with the response: "Pre-tax or after-tax income, which one do you mean?"

Though China introduced its law on individual income tax in 1980, for a long time it meant little to most Chinese citizens.

According to Professor Liu Junhai of the Research Institute of the Science of Law under the Chinese Academy of Social Sciences, the law set the minimum taxable individual monthly income at 800 yuan (96.38 US dollars), which was higher than the income of regular workers under the former centrally planned economy. As a result, citizens failed to be conscious of paying taxes and tax laws meant nothing to them.

In the wake of China's rapid economic growth, the proportion of individual incomes in the country's GDP has soared to about 70 percent, providing a solid base for tax collection.

State Administration of Taxation sources say revenue from individual income taxes has chalked up the fastest growth among all kinds of taxes levied on the Chinese mainland since 1994 when China set about reforming its taxation system, with an annual average growth rate of 48 percent over the past eight years. Such tax revenues amounted to nearly 100 billion yuan (12.048 billion US dollars) last year, of which 41 percent came from salaries.

According to a survey conducted by Shenzhen University based in south China's Guangdong Province, 95 percent of the respondents believe that economic development and people's greater awareness of paying tax have stimulated the substantial increase in tax revenues. More than 90 percent of those surveyed wanted a stronger law enforcement system for controlling tax collection.

China still loses a large amount of money in tax revenues, particularly from individual incomes, due to existing loopholes in taxation control and the absence of a credit information system for all Chinese.

The new rules on taxation administration and supervision, which took effect on Tuesday, include measures to prevent tax evasion. The rules also require a taxation registration system, under which a taxpayer who runs a business is allowed to open a banking account only if they possess relevant taxation registration documents.

The tighter control occurs against a backdrop of some major tax evasion cases. The most notorious of those was possibly the June arrest of Liu Xiaoqing, one of China's best-known actresses, in the last two decades, on charges of evading up to 10 million yuan (1.2 million US dollars) in taxes her businesses owed.

It is said that a great many hidden incomes were considered the biggest hurdle for tax collection on individual incomes.

Professor Hu Yijian from the Shanghai University of Finance and Economics said it is imperative to popularize bank cards and individual checks while limiting cash transactions as soon as possible. The existing real-name system for savings deposits should be improved to boost transparency of personal incomes, he added.

Apart from urging tougher law enforcement, the above survey also found that Chinese people are paying greater attention to their rights as taxpayers.

Jin Renqing, director of the state taxation administration, has revealed that in the next few years, China will consider increasing nontaxable items for individual incomes.

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