By Zhang Fenming | 2011-6-6 | NEWSPAPER EDITION
HIGH-INCOME earners in certain industries as well as highly-paid expatriates will come under tighter scrutiny from China's tax authorities who are responding to public complaints over tax evasion or underpayment of taxes by these people.
Tax officials at all levels have been ordered to prioritize collecting taxes and supervising high-income earners in industries including property, trust, resources and private equities, according to recent notice from the State Administration of Taxation.
These industries have spawned large numbers of highly-paid individuals as they benefitted from China's sizzling economic growth and have attracted the attention of the taxman in the battle against tax avoidance.
There is also a need to tighten tax collection on non-salary incomes, such as from transactions of non-listed companies and real estate as well as bonus and dividends, according to the notice.
The tax authorities will also come down hard on individuals who tried to evade paying taxes or under-declared their income.
The tax authorities will also cooperate with banks, police, commerce and administration bodies to access tax-related information for a better picture of taxable income in order to close door to tax evasion.
China is taking a tougher stance to curb tax evasion by high-income earners after public complaints that the rich are more likely and savvy enough to pay accountants to take advantage of loopholes - some legal and some not so - in the tax regulations so that they do not have to pay high income tax.
With wealth being accumulated at an unprecedented pace in China, the source of wealth has also become more diversified, with income from businesses, sole proprietorships and asset transfers. China's current tax regime is still focused on salary income. The recent notice from the SAT is an attempt to close the door to loopholes in tax payments.
China defines taxable income as bonuses, lottery winnings and other income besides salary. But salary is the easiest to track and taxes are withheld even before net income reaches the pocket. It is harder to track incomes from sources such as home rentals or consulting fees.
Earlier this year, more than 230,000 comments - a record - were posted online within one month in response to China's proposed income tax plans.
There was a strong consensus to cut taxes and narrow the wealth gap.
The strong public reaction followed a draft amendment which would increase the minimum threshold for personal income tax from 2,000 yuan (US$307) a month to 3,000 yuan. But observers have said that paying no tax on the first 3,000 yuan of earned income annually isn't going to help most people living in high-cost cities like Shanghai. Some lawmakers are calling for the minimum threshold to be set at 5,000 yuan. There are hopes a more generous threshold might be adopted in the end.
The tax plan, which would cost the government 120 billion yuan in revenue, includes raising the minimum tax threshold and cutting tax brackets to give relief to lower income workers, a pledge made by the government in its new Five-Year Plan (2011-2015).
China now levies tax on personal salary in nine brackets ranging from 5 percent to 45 percent. Under the proposal now being considered, the 15 percent and 40 percent brackets would be raised, and more taxpayers may find themselves eligible to enjoy the 5 percent and 10 percent brackets.