Finding ways to tax the rich
Individuals rather than enterprises should be held responsible for payment of personal income tax, says an article on the website www.jxcn.cn. Excerpts:
China's personal income tax can no longer help bridge the gap between the poor and the rich. Despite introduction of the policy of progressive taxation, usually those who have high incomes can easily circumvent progressive tax provisions, for their incomes are derived not from salaries alone but also from other sources, especially capital gains. Capital gains can hardly be taxed under the prevalent tax collection regime.
It is an extremely ridiculous tax collection regulation wherein it is not income earners who have the duty to pay tax on their individual income; rather, it is the enterprises that hire these employees that have this obligation. That means if an enterprise fails to pay the individual income tax on behalf of its employees, it is the enterprise who break the tax law.
Problems may arise if we focus our attention only on enterprises, especially private enterprises where corporate owners can also be employees. This collection mechanism has lost its most important function - linking the tax collection with the total income.
The cure for this illness lies in shifting the obligation - of paying individual income tax - from the enterprise to its employees. Enterprises can enable and monitor the tax payment of their employees, but the responsibility should vest wholly in each individual. Tax authorities should assess the annual income reports submitted by individuals and set the levels and numbers of individual income tax for every one of them based on the progressive tax rates.
Now we have yet to establish comprehensive archives with details of every tax-payer. So there would be problems in tracking evasion. A beginning can be made by first switching responsibility, and then proceeding to improve on the transition. We will see a better individual income tax collection if we can add some twist to the current system, such as requiring individuals to annually report their incomes and letting tax authorities carry out random checks.
(China Daily 04/28/2009 page8)
