China unlikely to levy inheritance tax, for now
By Xu Dashan (China Daily)
Updated: 2004-09-27 14:41

The Chinese tax authorities' recent decision to exempt stamp duty on legal heirs but impose it on other beneficiaries who receive land and houses suggest the country will not impose inheritance or bestowal taxes in the near future, experts say.

Residential buildings shoot up in an area east of the eastern fourth ring road in Beijiing. Housing sales go up in the city, so does the price. [newsphoto file]

The State Administration of Taxation issued a notice on stamp duty last week amid discussion in domestic media about whether the government would impose an inheritance tax.

Ni Hongri, a research fellow with the State Council's Development Research Centre, said the imposition of such a tax was unlikely.

"The government has not put it on its work agenda," Ni said.

Officials and economists are also divided on whether the government should impose such a tax, she said.

"Some believe that levying the tax would be a heavy blow to the country's rich and middle-class people, on whom the government is pinning high hopes to develop the economy," she said. "They say the tax should be imposed later."

However, implementation of the tax is not merely aimed at increasing the amount of fiscal revenue, she said.

"It should help encourage the rich to contribute more to the society," she said. "It should also help encourage the successors of the rich to continue to work hard."

Zhao Zhiyun, a senior researcher with the Ministry of Science and Technology, agreed, adding the threshold for imposing the inheritance tax should be no less than 1 million yuan (US$120,000).

"Implementation of an inheritance tax has become possible in China today, because an increasing number of people are growing rich," she said.

An earlier report said that China's rich, which account for about 20 per cent of the total population, hold more than 80 per cent of the country's saving deposits.

It was also necessary for the government to impose the tax, Zhao said.

"A perfect system should have different kinds of taxes," she said.

Increasing income gaps between the rich and the poor also point up the need for an inheritance tax, according to a group of experts at the Ministry of Commerce.

The Gini Coefficient, an international index used to measure income inequality between groups of people, rose from 0.282 in 1991 to 0.458 in 2000 higher than the international "alert" line of 0.4.

This means that Chinese society has entered a zone of income distribution inequality, one expert said.

Implementation of the inheritance tax, in co-ordination with a new personal income tax, could help narrow the gap between the poor and the rich, maintain social stability and stimulate consumption, he said.

The expert said the government should at first reform its existing personal income tax system.

The threshold for personal income tax, which stands at 800 yuan (US$96), should be raised, he said.

The personal income tax rate for those who earn less than 5,000 yuan (US$602.40) a month should also be lowered, he said.

Zhang Peisen, a senior researcher with the Taxation Research Institute, said: "As far as I know, the government does not have a plan to impose inheritance tax in the near future."

But the government should speed up reform on personal income tax, he said.

"Tax policy should target people with high incomes to promote economic development and social stability," he said.

Personal income tax should be based on bonuses, dividends and other income sources, instead of just salaries as it is today.

Meanwhile, an individual's personal circumstances, including their support of a child or elderly person, should be considered before tax is computed.

China's current personal income tax rates fall into 11 different categories based on income sources, and the system does not take much account of an individual's total annual income.

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