Employees earning more than 120,000 yuan (US$15,000) annually
will need to report their income directly to the tax authorities
from next year, it was announced Monday.
It is the first time that the State Administration of Taxation
requires high-income earners to self-report their earnings, but
their taxes will be paid by employers as happens now.
For those earning less than 120,000 yuan a year, employers will
continue to deduct tax at source and report to the authorities
directly, leaving the situation unchanged.
Observers stated their belief that the move shows the
government's resolve to income gap, and to increase national
revenues.
The taxation administration said in a statement on its website
that anyone including foreigners working in China who meet any of
the following criteria will need to report their incomes to the
taxation authorities.
People with an annual income of more than 120,000 yuan
with income from more than one organization
with overseas income
whose employer is tax-exempt
or as stipulated by the State Council.
"If this policy is executed effectively, it will play a part in
redressing the income discrepancy between the high-income group and
ordinary wage-earners," said Peng Longyun, a senior economist with
the Asian Development Bank (ADB) in Beijing.
Peng added that the bulk of individual income taxes are from
employees with fixed salaries, while those with high incomes and
from multiple sources usually pay little because of loopholes in
tax collection.
For instance, a foreign trade dealer surnamed Yang in Ningbo of
Zhejiang Province, who owns a villa and a car,
said he himself is only taxed US$300 a month; so there is no reason
for him to report his income to taxation bureaus.
ADB's Peng said that taxation authorities currently have single
access to people's income, either through their own reports or from
their employers. Now, they will have two and so can crosscheck for
discrepancies.
People above the 120,000-yuan threshold who fail to report their
earnings within three months of the end of the taxation year can be
fined up to 10,000 yuan (US$1,270), while filing false reports can
attract fines of up to 50,000 yuan (US$6,350) in addition to a
maximum of five times the tax amount due.
(China Daily November 9, 2006)