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September 17, 2009

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Taxman hits employee benefits

CHINA has imposed taxes on some employee allowances for telecommunications, transportation and other benefits, according to a report on the State Administration of Taxation's Website.

Twenty percent of an employee's telecommunications allowance and 30 percent of any auto allowance are taxable if there are no local standards for determining taxable and non-taxable amounts, the SAT said.

Company payments for commercial insurance and termination compensation are also identified as taxable income.

The report was the first time the state tax body specified details on taxable employee benefits. In March 2008, it made a more general announcement listing salary, allowances and bonuses as taxable income for individuals whether in cash, coupons or goods.

Tougher stance

The tax authority also said companies can't deduct employee retirement benefits from their corporate incomes, and it tightened controls on fuel tax payments.

"The notice comes against China's shrinking tax income," Walter Tong, a tax partner in the accounting firm Ernst & Young, said yesterday. "The taxman is using this as an opportunity to strengthen enforcement."

China's tax revenue had posted rapid growth since 1993 before it fell 3.5 percent in the first seven months of this year.

The notice comes on the heels of a nationwide "self-inspection" campaign in which companies are required to report on their tax practices.

"In the past, self-inspection seemed more like a rubber stamp," said an industry source who asked to remain unidentified. "But the SAT is really taking it seriously this year, showing its intention to tighten tax collection."

Self-inspection is used to encourage companies to be more prudent in complying with tax requirements. Penalties won't be charged on irregularities discovered in these reports. But if companies hide improper practices and the tax authorities discover them, penalties for overdue taxes will be levied.


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