Fake document reveals genuine taxation concerns
By Winny Wang |
August 18, 2011, Thursday
|
Print Edition
Print Edition
A RECENT tax hoax triggered widespread discussion among China's emerging middle class and proved embarrassing to the taxation authority.
The reason for the taxman's discomfit was that many taxpayers said the formula outlined in the mysterious bogus document for taxing one-off annual bonuses seemed more reasonable and cost them less than the actual tax regime.
Tax experts said the issue indicated that taxpayers are calling for a more transparent tax regime, as well as increasing tax efficiency.
"The recent China individual income tax reform has undoubtedly promoted taxation knowledge to a much wider general public, said Joyce Xu, a Deloitte tax partner, in an email interview with Shanghai Daily yesterday.
"Even relatively old tax circulars on annual bonuses, dating back to 2005, have now received renewed attention and led to a rethinking."
"The increased interest in the tax regime by the general public will encourage a transparent and fair tax administrative infrastructure and ultimately will contribute towards a fairer tax system," she said.
Major domestic media, including the state-run Xinhua news agency and CCTV, said at the weekend that the State Administration of Taxation (SAT) would implement a new method to levy tax on year-end bonuses, along with the new personal income tax threshold starting next month.
No connection
Xinhua, whose reports are regarded as official statements on news, even interviewed an official from the administration but didn't give their name or title.
However, on Monday SAT announced that the widely reported document - known as "Bulletin 47" - was a fake which had no connection to the administration.
"Some individuals forged the name of the administration to publish the fake 'Bulletin 47' document, which seriously misled taxpayers. The administration will take legal action against those responsible," the statement said.
Xu said the fake bulletin sought to address the perceived flaws and gaps in the current Individual Income Tax calculation method with regards to bonuses.
Liu Huan, vice dean of tax institutions under the Central University of Finance and Economics, said the SAT should fill the gap between the calculation method and citizens' expectations, and comply with public opinions to implement tax rules more rationally.
Fake makes sense
As the fake method seemed more reasonable than the current one - it avoided situations where those who earn more before tax end up, after tax, with less than lower earners - some people even doubted the SAT's statement that it was a fake.
"The document's called a fake but the method makes sense," one web user said.
"The SAT should give us the genuine version, or we will get confused," another web user said.
However, besides the statement, the SAT hasn't given any explanation on the issue nor told the public how tax on year-end bonuses will be levied under the new individual income mechanism starting next month.
Some people claimed the document was genuine but not intended for release, perhaps because it was only a draft version.
"These are very positive signs which signal a developing and maturing Chinese middle class, and this in turn will encourage the formation of a well thought out, equitable and standardized tax system," Xu said.
In China, the year-end bonus is a one-off annual bonus that can be divided by 12 to determine the tax rate and a quick-calculation tax deduction number accordingly. The fake method introduces a larger quick-calculation tax deduction that may lead to lower tax payments for certain people.
Many people complain that they earn bigger year-end bonuses before tax than colleagues, but receive less after paying tax.
Under the current system, a person who gets a year-end bonus of 24,000 yuan (US$3757.63) will take home 21,625 after paying tax. But a person with a year-end bonus of 25,000 yuan takes home 21,375 yuan after tax - 250 yuan less.
From September 1, the individual income tax threshold for Chinese workers will be raised from 2,000 yuan to 3,500 yuan and the tax brackets cut to seven, with rates ranging from 3 percent to 45 percent.
The reason for the taxman's discomfit was that many taxpayers said the formula outlined in the mysterious bogus document for taxing one-off annual bonuses seemed more reasonable and cost them less than the actual tax regime.
Tax experts said the issue indicated that taxpayers are calling for a more transparent tax regime, as well as increasing tax efficiency.
"The recent China individual income tax reform has undoubtedly promoted taxation knowledge to a much wider general public, said Joyce Xu, a Deloitte tax partner, in an email interview with Shanghai Daily yesterday.
"Even relatively old tax circulars on annual bonuses, dating back to 2005, have now received renewed attention and led to a rethinking."
"The increased interest in the tax regime by the general public will encourage a transparent and fair tax administrative infrastructure and ultimately will contribute towards a fairer tax system," she said.
Major domestic media, including the state-run Xinhua news agency and CCTV, said at the weekend that the State Administration of Taxation (SAT) would implement a new method to levy tax on year-end bonuses, along with the new personal income tax threshold starting next month.
No connection
Xinhua, whose reports are regarded as official statements on news, even interviewed an official from the administration but didn't give their name or title.
However, on Monday SAT announced that the widely reported document - known as "Bulletin 47" - was a fake which had no connection to the administration.
"Some individuals forged the name of the administration to publish the fake 'Bulletin 47' document, which seriously misled taxpayers. The administration will take legal action against those responsible," the statement said.
Xu said the fake bulletin sought to address the perceived flaws and gaps in the current Individual Income Tax calculation method with regards to bonuses.
Liu Huan, vice dean of tax institutions under the Central University of Finance and Economics, said the SAT should fill the gap between the calculation method and citizens' expectations, and comply with public opinions to implement tax rules more rationally.
Fake makes sense
As the fake method seemed more reasonable than the current one - it avoided situations where those who earn more before tax end up, after tax, with less than lower earners - some people even doubted the SAT's statement that it was a fake.
"The document's called a fake but the method makes sense," one web user said.
"The SAT should give us the genuine version, or we will get confused," another web user said.
However, besides the statement, the SAT hasn't given any explanation on the issue nor told the public how tax on year-end bonuses will be levied under the new individual income mechanism starting next month.
Some people claimed the document was genuine but not intended for release, perhaps because it was only a draft version.
"These are very positive signs which signal a developing and maturing Chinese middle class, and this in turn will encourage the formation of a well thought out, equitable and standardized tax system," Xu said.
In China, the year-end bonus is a one-off annual bonus that can be divided by 12 to determine the tax rate and a quick-calculation tax deduction number accordingly. The fake method introduces a larger quick-calculation tax deduction that may lead to lower tax payments for certain people.
Many people complain that they earn bigger year-end bonuses before tax than colleagues, but receive less after paying tax.
Under the current system, a person who gets a year-end bonus of 24,000 yuan (US$3757.63) will take home 21,625 after paying tax. But a person with a year-end bonus of 25,000 yuan takes home 21,375 yuan after tax - 250 yuan less.
From September 1, the individual income tax threshold for Chinese workers will be raised from 2,000 yuan to 3,500 yuan and the tax brackets cut to seven, with rates ranging from 3 percent to 45 percent.
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