6 Sept 2011
Chinese Anger Over Two Taxes
Two taxes have triggered an outcry from Chinese people recently, underscoring the public’s growing discontent over a government which they believe “exploits” the average people but fails to scrutinize the rich.
Last month, some tax bureaus announced plans to levy couples for adding a spouse’s name to the property ownership certificate. The city of Nanjing in East China’s Jiangsu province had announced a three percent tax for the transference of property, while Wuhan in Central China’s Hubei province had set a four percent rate.
The tax was to follow a new judicial interpretation of the Marriage Law, which took effect on Aug. 13 and stipulated that property bought by one party prior to marriage is to be deemed the personal property of the registered owner, not the couple’s joint estate.
This prompted many people to try to have them registered as co-owners on property to feel secure in their marriage and be entitled to at least half of the home in case of divorce.
Apparently, local authorities were seeking to take advantage of the situation by imposing a tax, although tax bureaus cited relevant regulations to justify the levy. Authorities argued that adding a name to a property title meant a new transaction had taken place and therefore was subject to taxation.
That reasoning triggered widespread criticism and scolding, with netizens calling the tax a form of “tyranny”.The Ministry of Finance and the State Administration of Taxation stepped in earlier this month, asking local officials to scrap the tax.
Meanwhile, another tax also cracked Chinese people’s nerves recently.
The Beijing tax bureau said late last month that mooncakes given as gifts by employers to their staff are taxable as part of employees’ in-kind income, in accordance with the personal income tax law.
Several other cities followed suit, saying they have already levied mooncake tax or have plans to do so.
Theoretically, this tax is legal. Chinese law has long stipulated that a person's income, including cash, in-kind gains and securities, are taxable, and these benefits should be counted into the person's taxable income.
Nevertheless, people are vehemently opposed to this tax.
Mooncakes gifted by companies are usually excessively packaged and hence are overpriced. If these mooncakes, which are consumed during the traditional Mid-Autumn Festival to mark a family reunion, are taxed, it will eat away employees’ incomes. Many people believe that mooncakes are supposed to be a goodwill from the company and should be not be taxed.
That thinking prompted many netizens to rail at tax authorities for “exploiting ordinary people for just petty profits.” Many of them also questioned why tax authorities do not devote their efforts to curb tax evasion by the rich, instead of just keeping an eye on average people.
The anger over the mooncake tax is expected to wane after the Mid-Autumn Festival. But what has happened tells us a few points worth noting.
First, Chinese people are increasingly unhappy with the tax imposed on them. As more people have overseas experience and as the growing penetration rate of the internet allows them to know more about international practices, the Chinese have realized that they are heavily taxed compared with people in many countries and regions.
Heavy tax was reasonable when China needed to accumulate capital to fuel its economic growth mainly through investments and exports. But now that the country is going to become a great consumer to sustain its growth, tax should be lessened to allow its people to spend more.
Second, tax authorities in China lack coordination and have poor awareness of laws. Apparently, central and local bureaus did not communicate fully in the case of property certificate tax at the very beginning. Each local bureau does things in its own way. How come the same tax was levied at one rate in one city, at another rate elsewhere, but not levied in some other cities?
If this sort of thing happens too often, the credibility of tax authorities and the government as a whole will soon be nowhere.
Last but not the least, since local bureaus have become eager to reap “petty profits” by creating new taxes, it could mean that local governments are in a fiscal squeeze after levies on land sales dropped significantly.
Full content of EJ Insight is available at www.ejinsight.com. Copyright Hong Kong Economic Journal Ltd. Republishing and editing are forbidden without authorization from Hong Kong Economic Journal. If there are any questions, please contact Chris Yeung (email@example.com) for editorial matters and Margaret Lor (firstname.lastname@example.org) for sales and marketing matters.