China’s Tax Authority Targets Income of Foreigners, Wealthy Chinese

Dec 05, 2014 06:03 AM EST

(Photo : Reuters) Chinese multimillionaire Chen Guangbiao gives money away to street cleaners during an event organized by him, where people representing companies, which Chen claims pollute the environment, attend a parade to be publicly "shamed", in Nanjing, Jiangsu province February 21, 2013. The event also aimed to promote awareness on air pollution. China's air pollution has rekindled a campaign by a Chinese multimillionaire with a streak of showmanship who is raising the alarm by organizing of environment events. Weeks ago Chen, who made his fortune in the recycling business and is a high-profile philanthropist, handed out soda pop-sized cans of air, purportedly from far-flung and pristine regions of China, from Xinjiang in the far northwest to Taiwan off China's southeast coast. REUTERS/Carlos Barria (CHINA - Tags: ENVIRONMENT BUSINESS SOCIETY)

To meet the State Administration of Taxation's 2014 growth target of 7.5 percent, the national tax agency is looking into the income of rich Chinese and foreigners.

From January to September, the growth of tax revenues was still short by 0.1 percent of this year's target, but when compared to the same nine-month period in 2013, this year's collection pales in comparison to last year's 9 percent growth.

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Salaried Chinese would not be affected by the intensified tax collection effort since their personal income tax is already collected from source. The target of the Chinese taxman are income outside salaries, from investment or proceeds of stock options, which is timely since more Chinese are now investing in stocks.

PricewaterhouseCoopers said more attention would be given to the assets abroad of rich Chinese which are still subject to income taxes, unlike many countries where income earned overseas is not taxable.

The failure of the system to capture income taxes is evident in the 9.3 percent boost in income of China's urban residents from the first three quarters of 2014, despite the slowdown in the national economy as China's gross domestic product slowed down to a five-year low of 7.3 percent in Q3.

Peter Ni, partner at Zhong Lun Law Firm, figures that individual income tax would be the obvious target of the government since there is room for growth with personal income tax collection contributing only 6.3 percent to total tax revenue so far. In comparison, in the U.S., personal income tax collection accounted for 47 percent of 2013 total tax collection.

The cue to run after wealthy Chinese and foreigner came from no less than Chinese President Xi Jinping who said at the G-20 conference in Brisbane, Australia in November that he wants to improve global tax collection and run after tax evaders.

But Joyce Xu, leader of global employee service for China and Hong Kong of Deloitte Touche Tohmatsu, pointed out that the country has all laws in place to collect higher level of taxes. What is needed is serious implementation of those regulations, Xu said.

Tagspersonal income tax, foreigners