Caixin
ECONOMY

Does China Rely Too Much on Taxing Salaries?

Over the last few years, the central government has derived more and more of its tax revenue from taxing salaries. Photo: VCG
Over the last few years, the central government has derived more and more of its tax revenue from taxing salaries. Photo: VCG

A former talk show host’s accusation that tax evasion is prevalent in show business has reignited a debate in China about whether the government relies too much on taxing people’s salaries.

Cui Yongyuan, a former talk show host at state broadcaster CCTV, took to social media over the weekend to accuse a prominent, but unnamed, movie star of tax evasion, unintentionally sparking a debate about the fairness of current tax system as the central government collects the majority of its tax revenue from people’s wages.

Caixin has learned that in Shanghai and Zhejiang province, people working in the show business, who generally earn high salaries, can avoid paying high individual income tax rates by setting up a studio and registering as employees of the studio. Using this method, playwrights, directors, actors and producers can pay a personal income tax at a rate as low as 2.16%.

This means that the tax rate on studio staff is less than the lowest income tax rate for salaried employees.

China taxes 11 types of income, including salaries, investment income and business profits. Each has its own set of tax brackets and rates.

China’s tax exemption threshold for salary income has not budged since 2011, when it was raised from 2,000 yuan ($312) to 3,500 yuan. China’s highest tax rate on individual income is 45%, while the lowest rate is 3%.

Over the last few years, the central government has derived more and more of its tax revenue from taxing salaries. In 2012, the salary tax accounted for 61% of tax revenue, according to data from the Ministry of Finance. By 2017, when the government collected 1.01 trillion yuan in tax revenue, that figure had grown to 66.6%.

China also collects revenue from taxes on property transfers and investment income, but those two taxes accounted for less than 13% and 9% of total tax revenue last year, respectively.

By comparison, the U.S. government in 2016 collected 47% of its tax revenue from the federal income tax, the country’s levy on wages and salaries, according to the Center on Budget and Policy Priorities.

In a document released in 2010, the State Administration of Taxation urged local tax bureaus to step up taxation on higher-income groups such as accountants, lawyers, consultants, real estate agents and entertainers.

Contact reporter Pan Che (chepan@caixin.com)

ladingImg
You've accessed an article available only to subscribers
Try 4 weeks for $0.99
SUBSCRIBE
Share this article
Open WeChat and scan the QR code
Copyright © 2017 Caixin Global Limited. All Rights Reserved.