The draft amendment to the Personal Income Tax Law focuses on
better collecting taxes from the rich, according to a China
Youth Daily's report on September 26. Liu Yin, director of the
research office of the Finance Department of the Capital University
of Economic and Business, said the amendment should help
prevent tax evasion.
According to an official from Tax Policy Department under the Ministry of
Finance, the draft amendment requires the wealthy to file
personal income tax, regardless of whether their taxes have been
withheld on commission by their employers. This means they have to
fill up Personal Income Tax forms regularly. If one hasn't reported
personal income and at the same time is discovered to have evaded
tax payment, he will be held responsible not only for tax evasion,
but also for failure to self-report.
Although a two-way inspection system on personal income tax
administration will be set up, it cannot ensure the rich pay tax
according to the regulations because advanced measures on tax
collection are still lacking, Liu Yin explained. Tax avoidance
happens frequently by those with high incomes because of
backwardness and loopholes in taxation administration.
The rich should contribute more tax payments. However, the tax
withholding system places the burden of tax payment on wage earners
only, while loosening scrutiny on those with higher income. This is
why rate of tax evasion among the wealthy is higher than wage
earners. For example, the daily expenses of a rich family, road
maintenance and insurance costs of their cars and even their
children's tuition are accounted for as company expenses. When
discovered by tax authorities, these tax evaders may claim that
they had no idea why the tax agent failed to withhold their payable
taxes as commissioned. In this situation, tax authorities can only
punish the agent.
Liu also explained other measures that have been taken to
prevent tax evasion. For example, specific regulations on tax
payment were made concerning use of company funds for consumer
spending by employees and their family members, long-term loans
given to employees by companies, insurance purchased for employees,
etc. The nation has also set up files on those with high incomes
and enhanced the personal income tax administration. However, the
phenomena of the poor paying tax while the rich evade tax exist
because there is still a lack of advanced inspection measures and
consciousness on tax payment.
Self-reporting, combined with a tax withholding system, will
make tax evasion more difficult, said Liu.
(China.org.cn by Wu Nanlan, September 30, 2005)