China's Wealth Management Sector Tax Set-Back

Paul Das

23 September 2005

China's tax authorities are turning their attention to high-income individuals, including investors and employees of foreign-invested and multinational companies. The crackdown is part of a campaign to make the tax system more equitable and consistent, according to a recent announcement on the State Administration for Taxation's website. The announcement said that foreign entertainers working in China, private investors, employees of foreign-backed firms, and foreign-invested companies in finance, insurance, securities, tobacco, petrochemical and civil aviation are all to be targeted by the Chinese tax authorities. Tax collectors will first target individuals whose tax affairs may have the most impact on revenue and then to continue on a rolling random sample basis. The Chinese government has been growing increasingly concerned about rising inequality in wealth in a country where, as economic growth rates continue to soar, the average annual income is currently only $1,000 per capita. The government has recently approved a draft amendment to the income tax law exempting those who earn less than 1,500 yuan ($185) per month from income tax, up from the previous monthly income threshold of 800 yuan. A previous crackdown on high income earners in 2002 resulted in arrests and prosecutions, including the Chinese actress Liu Xiaoqing, who was reportedly forced to pay a tax bill of 16 million yuan to secure her release from prison after a year inside.