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)