China Intensifies Pressure on Wealthy Individuals and Corporations to Pay Up on Taxes
China started implementing a previously ignored tax on profits from foreign investments made by the wealthy individuals in the country, based on information from insiders.
According to sources who wished to remain anonymous, affluent people in big Chinese urban areas were either asked to do self-assessments or invited by tax officials for discussions to determine potential dues, including outstanding payments from previous years.
The government’s increasing urgency to find new sources of revenue is evident as land sales decline and growth rates decrease. This also coincides with President Xi Jinping’s initiative for “common prosperity” to promote a fairer wealth distribution in China, the world’s second-largest economy.
The sources stated that those contacted may be charged as much as 20 percent on their investment profits, and some could also incur fines for late payments, with the option to negotiate the final sum.
China’s tax initiative is in addition to the adoption of the Common Reporting Standard (CRS) in 2018, a system for sharing information globally to combat tax evasion. Recent enforcement actions have brought attention to the long-standing requirement for residents to pay taxes on all worldwide income, including investment profits, as mandated by local regulations, according to sources.
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The sources mentioned that the extent and duration of the efforts are uncertain. According to the sources, some Chinese individuals who were targeted had offshore assets worth at least US$10 million, while others were shareholders of companies listed in Hong Kong and the US.
China’s tax bureau
There was no response from China’s tax bureau to a request for comment.
For six years now, China has been sharing information with almost 150 countries through the CRS regarding accounts of individuals liable to taxation in each respective country.
Patrick Yip, the vice-chair of Deloitte China, stated that China possesses a wealth of CRS data that tax authorities could easily utilize to identify collection possibilities. Individual tax audits are likely to increase in comparison to enterprise tax audits.
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