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Why only 2% of Chinese pay any income tax
- situomeng 8y agoI suppose this is the data for salary. If you check out the income distribution, most people simply don't make that much money to reach the tax line
- microcolonel 8y agoSimilarly, a huge proportion of Americans pay no net taxes.
- freddie_mercury 8y agoThat's not what the article or the Chinese finance ministry say. Didn't you read the article?
- sasaf5 8y agoThe article is paywalled. Any TL;DR?
- f00_ 8y agonon paywalled version: https://outline.com/YycYjt https://outline.com/YycYjt
- supremerumham 8y agohttps://outline.com/vfgWnR https://outline.com/vfgWnR should be able to see it now!!
- gok 8y agoThe article says you're right that most don't hit the minimum, but ~160 million people (12% of the population or so) should pay income tax but don't.
- jeffdavis 8y agoA lot of people in the U.S. don't pay net income taxes either, about 44% accoeding to [1]. [1] https://nypost.com/2017/04/18/almost-half-of-americans-wont-pay-federal-income-tax/ https://nypost.com/2017/04/18/almost-half-of-americans-wont-...
- gok 8y agoBut that's because they don't owe anything, not because of evasion
- mikeyouse 8y agoThat obnoxious statistic always excludes payroll tax as well. Not to mention that the "Lucky duckies" is one of the most rightly ridiculed tropes in recent memory, arguing that poor people in the US have it too good: https://web.archive.org/web/20030626024327/http://www.tnr.com/etc.mhtml?pid=475 https://web.archive.org/web/20030626024327/http://www.tnr.co...
- smudgymcscmudge 8y agoNo. The 66% includes tax evaders as well as those who legally don’t need to pay.
- HillaryBriss 8y ago44% in the US compared to 98% in China -- that's quite a difference! compared to the US's IRS, China's tax collection agency seems, in effect, less capable because China's workers are so good at avoiding/evading these taxes.
- swuecho 8y agonot because Chinese worker are good at avoiding tax. it is because china is not a state with an adequate legal system. It is a tradition that a lot of thing happen under the table.
- wavefunction 8y agoWhat a weird and artificial statistic to bring up. I don't believe it has any actual meaning given that the individuals have met their legal obligations for income taxes.
- swuecho 8y agoin china, a big part is house buying tax in disguise of bubbled land price. well, if everyone pay tax as they should in theory, the housing bubble would not be that crazy. people ducked taxes believing they save the money and then give them back when buy house. who are the cleverest?
- netheril96 8y agoEven if you don't duck taxes, you still face the high house prices, unless everyone else magically agrees to not duck taxes too.
- HillaryBriss 8y ago> ... workers skimp on taxes because they do not trust the government will spend their money wisely. Mr Liu cites the Belt and Road Initiative, a global infrastructure-building project, as an indefensible giveaway to poor countries ... interesting. sounds kinda like what some US red-state voters think. also: US media tend to portray the Belt and Road Initiative more like a plan to dominate the world than a giveaway to poor countries. quite a difference in perspective here.
- gniv 8y agoThe article doesn't say how much of the budget is from income taxes, but it cannot be a lot if only 2% pay taxes. In the US income taxes are almost half of budget revenues.
- sanxiyn 8y ago> The article doesn't say how much of the budget is from income taxes It does. It is 8%.
- samspenc 8y agoThat's interesting - because it begs the question, if income taxes are only contributing 8% to the coffer, where is the country's revenues mostly coming from?
- gammateam 8y agoNationalized companies and tariffs The party owns like 15% of every company
- Iv 8y agoAs well as ~100% of 3 of the 4 largest companies in the world: https://en.wikipedia.org/wiki/List_of_largest_companies_by_revenue https://en.wikipedia.org/wiki/List_of_largest_companies_by_r... (and most of the biggest companies in China as well)
- azinman2 8y agoSo then how does the gov have any money to do these giant infrastructure projects?
- eksemplar 8y agoThey tax/own companies. I mean, it’s obviously much more complicated, but that’s the gist of it.
- zeckalpha 8y agoThe government collects revenue from other sources than income tax.
- reactor 8y agoPart of its via Fiat money, i.e debt it and print it.
- rapsey 8y agoGovernments create their own money.
- taobility 8y agoChinese government got most of the tax income from the business entities.
- vidoc 8y agopotentially because 98% of the society is getting wages deemed as "below the taxable" level ?
- TomMarius 8y agoPossibly, but without the Western subtext of being too poor
- swuecho 8y agochina is so different from west countries. for example, in china, when you sell stock, there is no tax on profit gain. however, there is a stamp tax.
- xmly 8y agoDude, you really need to learn how western countries work. Majority of policies in China, especially economic policies, China learns from either HK or Taiwan, then they are learning from either US or UK. Like the stamp tax you mentioned, you know what it is if you trade stocks in HK or UK.
- cft 8y agoUS had no income tax until 1913- that's what made the Golden Age of America possible, and created the foundation for its 20th century wealth. In a similar fashion, China is benefiting from the low tax burden, getting ahead of the rest of the world.
- qwerty456127 8y agoWhy not do this today in the USA or anywhere?
- cft 8y agoBecause you got downvoted for merely asking the question.
- skrealing 8y agoMany countries do this: https://en.wikipedia.org/wiki/List_of_countries_by_tax_rates https://en.wikipedia.org/wiki/List_of_countries_by_tax_rates My impression is that income tax is less damaging to investment than than corporate taxes and capital gains taxes, while also being less regressive than a sales tax or VAT.
- Kaveren 8y agoWhy was pre-1913 the "Golden Age of America"? The US did very well for itself post-WWII, and we're in a pretty good place today.
- cft 8y agohttps://en.wikipedia.org/wiki/Gilded_Age https://en.wikipedia.org/wiki/Gilded_Age
- mturmon 8y agoThis term is meant in the opposite sense to what you seem to be implying in your prior comment. The clue is right there in the name: “gilded” does not mean golden, in the sense of being made of gold.
- awsedr58479 8y agoDisclosure: using a throwaway giving the sensitive nature of the topic I've always found very curious to not hear more about taxes in China. It is a mystery to probably no one who have spent a certain amount of time in China that a very few amount of people are actually paying taxes. There is a few regular patterns on how they achieve evasion, but in short it is a mix of large amount of cash/cash payments, and close to 0 actions on whatever personal bank transactions. The later has always amazed me. While some countries will start tracking each transfer > $1,000, Chinese banks will probably not even bother contacting you for a transaction of $10,000 (in RMB, foreign currencies being quite regulated) or even probably more. And yes, you can buy a car or a house with this money, in Cash. No question asked. There are also some easy ways to use some complex/criminal networks of money laundering in order to get the RMBs out of China through shell companies often in tax heavens. We all know that China's CCP is gathering a very consequent amount of data about virtually everyone entering the territory (or more). But they seem to struggle at implementing actions. This would explain the government's efforts to reduce the amount of cash circulating in the country, and encouraging (via strong investments) mobile payments (wechat/alipay). This would also explain the very short upcoming of the "social credit score" and I've found astonishing that no one every mentioned taxes on that matter. Now, open list of [somewhat naive and genuine] questions: - Where does the government's money comes from? [it appears to me to be mostly inflation, on an underlying crazy monster bubble] - Can a government subsist with a population not paying taxes? [apparently not, i.e social credit score] - How will the people react when they will realize they have to give away XX% of their pay when they never gave any $$? - [last but not least] Is that somewhat comparable to, say, the US [or other western countries] few generations earlier? If yes, are we paying the bill for these generations? If yes, should we start worrying? [Are taxes going to keep raising indefinitely along with debt?] I'm sorry for a not so organized answer but I wanted to express a few comments about things I've seen myself. The [] answers of the questions are personal guesses/notes and I would love to hear more accurate answers from people with better knowledge on the topic.
- Kaveren 8y agoIf this is the case, why wouldn't the state be in favor of strict AML regulations? Aren't they very afraid of Uighur terrorism? I'm not sure about the real risk of funding separatism, but I'd be surprised about the perceived risk not being realized by the state.
- deleted 8y ago[deleted]
- hhtest 8y agoActually, the gov is taking actions and it's quite strict. One example is, my friend's bank account was AUTOMATICALLY withdrawn a couple hundred RMB from last month, to pay the tax AUTOMATICALLY. Lived in the US for a couple of years, I can't imagine IRS doing that to my bank account Also, to the @awsedr58479 's question: Chinese consumption tax is crazily high. Most people don't know they are paying it since it's structured into the price tag. Also the companies are paying quite a lot of taxes
- awsedr58479 8y ago16% VAT isn't that high to my knowledge. As seen in other comments, middle classes are the one who will likely pay the most. Lots of "legit" companies/workers are paying income taxes; they represent the 2%.
- isostatic 8y agoThe left often argue that VAT is a regressive tax, with "poor" (by which they mean low income, not low wealth) people paying more as a percentage of their income than "rich" people. I'm not entirely sure why, given the number of basic items that don't attract vat (rent, train fares, food). Buy a new car though and you're paying tons.
- CiaranMcNulty 8y agoBecause the % of income spent on goods decreases as earnings increate. Many high-earners aren't 'spending' their money, they're investing it to make more money Whereas low-earners are spending their pay cheque before the next one arrives.
- echevil 8y ago> my friend's bank account was AUTOMATICALLY withdrawn a couple hundred RMB from last month, to pay the tax AUTOMATICALLY. That's just the primary way to pay income tax in China. People usually don't file tax returns on their own. Their employers calculate the tax they should pay and deduct from their salary automatically
- xmly 8y agoIn China, there is no property tax either. HAHA. A lot of differences between US and China. 2% pay the income tax is because the income is really low, that is why the jobs are moving to China. The US is losing jobs only because US labors are paid too high. In my opinion, it is just due to economical stage and structure. China's salary is rising, so a lot of jobs are moving to other countries, like Vietnam. In the future, China government would more rely on income tax like US. But it would take another 15-20 years in my opinion.
- wjnc 8y agoIn my little country in Western Europe starting in World War 2 all those with income from labor have paid wage taxes. The first income tax was introduced in 1915. Before that in the 16th century: the first value added tax. Most revenue up until 1915 came from value added taxes and levies. That goes to show that (comparatively) low taxes is not a function of low income.
- xmly 8y agoSo there is so many tax genius: https://www.bankrate.com/finance/taxes/how-to-pay-no-federal-income-tax.aspx https://www.bankrate.com/finance/taxes/how-to-pay-no-federal...
- deleted 8y ago[deleted]
- xmly 8y agoRead the article. Could not believe The Economist would publish this amateur article. Very naive on economics.
- garmaine 8y agoYou must not be very familiar with The Economist.
- dis-sys 8y agoI bought a German made car last year, its drive away price is about $60k USD in the US, I paid $120k for that in Shanghai - 25% tariff, 17% VAT, 25% sales tax, 10% vehicle tax, that is 77% combined. Trump choose to focus on the 25% tariff part and complains that it is difficult to sale American cars in China. What Trump didn't want to tell is the other 52% that apply to all cars including domestic brands. On top of those taxes, to get the new car registered you need a number plate right? the number plate is auctioned monthly, every month you have about 5% chance to secure the number plate even if you are willing to pay the current market price of $16k. They don't call it a tax, but it is obviously a tax collected on every car owner in Shanghai. statistically, you can keep bidding every month for 2 years and still couldn't get your car registered. and no there is no way to buy such number plate at $16K USD from other owners/the black market, the only alternative option is to pay $60K USD to the gov to get a motobike number plate and convert that to a regular car number plate. Again, it is a tax. Once you have everything above sorted out, congratulations! time to pay tax for petrol! For every $1 you spent on petrol, around 50% of that goes into taxes. Time to hit the roads right? Time to pay the toll roads then. In some provinces, we are talking about toll stations every few kilometers. Too expensive to even use the new car? Fine, just park it somewhere - $200k USD for a car park in my building, as expected, don't forget the $50k taxes/levies/agent fees/stamp duty on top of that as well. Life in China is like playing video games in Expert mode and those numerous taxes is by far the most significant reason.
- Sabinus 8y agoIs the public transport very cheap or expansive?
- thaumasiotes 8y agoVery cheap.
- megablast 8y agoSounds to me like China is doing it right.
- russum 8y ago
- EZ-E 8y agoBack when I worked in China, avoiding taxes was super common. I even received SMS spam advertising consultancy to companies about how to avoid them. The company I worked in wired my salary in multiples bank transfers from different accounts. The after taxes salary ended up only 1-2% less than the one before taxes because the declared&taxed income was just around 1000$. The bank never asked questions. In China, companies are in charge of paying the income taxes for you but they usually have the means to dodge it, and the workers are complacent since they benefit from it too. If China starts cracking down on it, lots of Chinese with high leveraged mortgages (up to 70% of their income sometimes) will be in trouble.
- dis-sys 8y agoIndividuals are required to declare annual income on their own once they earn anything above 120K CNY (~15K USD).
- NedIsakoff 8y agoThe Constitution of the People's Republic of China also guarantees freedom of speech, press, assembly, and association.
- mmmBacon 8y agoFrom the article : The threshold at which tax becomes payable was raised from 3,500 yuan ($503) to 5,000 yuan a month on October 1st. The finance ministry says the number of people liable for income tax should fall to 64m as a result. Is the article correct that only 64M out of 1.1B people will pay income tax or did they miss an order of magnitude? Just trying to calibrate since only 64M people making ~>$750/month seems like a low number for China.
- jerrre 8y ago> 64M people making ~>$750/month I read it as 64M people making enough to pay ~>$750/month in taxes
- baybal2 8y agoGuys, you have a huge misunderstanding there. While income tax may be paid by few, China, just like many ex-bloc countries, collects significant social security and pension contributions that are often bigger than ones income tax. This is a de-facto because Chinese never see the benefit of their social security and pension contributions.
- rishav_sharan 8y agoIt is a similar case in India with only 1.7% of households paying the income tax. https://timesofindia.indiatimes.com/business/india-business/toi-budget-2018-special-income-tax-payers-in-india-are-minuscule/articleshow/62538779.cms https://timesofindia.indiatimes.com/business/india-business/...
- sytelus 8y agoNPR article on the topic: https://www.npr.org/sections/parallels/2017/03/22/517965630/why-do-so-few-people-pay-income-tax-in-india https://www.npr.org/sections/parallels/2017/03/22/517965630/... Summary: Large portions of people are involved in small mom & pop shops. Most of these shops do business in cash. Most even don't register with tax department. They use bribes to avoid getting fines.
- netcan 8y agoSo... "Salaried professionals in big cities have long complained that they bear an unreasonable share of the tax burden. That is because firms are legally required to withhold a portion of salaries in taxes. The rich, whose income usually does not come in the form of a pay cheque, and those in the informal economy." Economists and politicians justify tax setups in terms of efficiency or fairness. Ultimately though, practicalities are the main authors. ... whatever yields the highest tax in a given economy. The reason tarrifs & trade taxes were such a big deal is that ports are centralized & taxable. Way back in the day, rivers, roads and bridges made good tax collection points. Land taxes were also practical. In advanced economies, income taxes have been practical because enough income is earned as salary at firms large enough to be regulated. Firms are structured around avoiding corporate tax, not income tax. China is at the point now where it's practical to tax income. The west is now at a point where the ultra-rich are an attractive tax target. But, trying to apply the income tax system to them is not practical for the same reason it is practical in China.
- isostatic 8y ago> Land taxes were also practical. Why aren't they now?
- perpetualpatzer 8y agoNot OP, but i imagine it would face political pressure in the US. Farms take up more land than penthouse apartments, but likely have less ability to pay. You could pass the costs on to customers, but then you're advantaging food imports, which has national security implications.
- isostatic 8y agoBut an acre of land in Ohio isn't worth anywhere near as much as an acre of land in Manhattan.
- speleding 8y agoActually, in a previous article in the Economist on taxes, they claimed taxing land and real estate is a very good non-distorting way to levy tax, and urged western governments to do it more. My country (the Netherlands) has an estate tax of sorts and at least one problem with it is that the legal system is getting clogged by hordes of people challenging the government over the valuation of their property (you pay a percentage of the property value).
- dools 8y agoIncome tax is stupid ... we want people to work. Why discourage it?
- ericintheloft2 8y agoYou are saying that income tax in discouraging people to work, do you have any evidence of this?
- todd8 8y agoFrom the US Congressional Budget Office[1]: "When workers’ earnings rise but their after-tax income rises less—because of increases in their income and payroll taxes or declines in their benefits from government programs—their incentive to work typically declines" [1] https://www.cbo.gov/publication/52472 https://www.cbo.gov/publication/52472
- yourbandsucks 8y agoThat's only really relevant when people cross some thresholds at the very bottom of the income scale that cause them to lose benefits, though. Otherwise, it's just trivially true for any taxation regime: a flat 1% tax means your after-tax income rises less than your pre-tax income.
- CiaranMcNulty 8y agoProgressive income tax retains the property that the higher your salary is, the more you take home
- richardknop 8y agoBut there are diminishing returns which is not exactly motivating. The way to think about it is, imagine you would work 20% harder, but instead of 20% extra take home money you only get 10%. And it gets more skewed progressively which discourages trying hard at some point. People just stop trying as they don't see the reward as good enough for working harder.
- porpoisely 8y agoMany here are wondering how the chinese government can finance itself when so few people pay income tax. There are many ways for a government to raise funds besides the income tax. People forget that we didn't have income tax in the US for much of our history and a few states still have no income tax. We've become indoctrinated into thinking income tax is the norm. Nobody questions it but for much of US history, people viewed taxing work as an evil. And income taxes was a temporary tax instituted to fund wars ( civil war ). For most of american history, we didn't pay income tax.
- fjsolwmv 8y agoBlack Americans whose ancestors paid 100% income tax dispute your notion that USA was built without work tax or that it was regarded as evil by most people in power.
- bilbo0s 8y agoTechnically, they did pay tax as the owners of the slaves would have been obliged in some states to pay certain fees based on outputs. (And a lot of times even on the inputs.) No one ever evades taxes. As horrible as this may sound, that kind of included blacks.
- HappyRobot 8y agoAn episode of Planet Money[0] mentioned that some economists believe income tax is not ideal. Their thinking was that taxation usually discourages the action that is being taxed. Work shouldn't be discouraged. The proposed solution in the episode was to replace the income tax with a carbon tax. Encouraging people to cut down on their carbon footprint with taxes that wouldn't be more than their current income tax. [0] https://www.npr.org/sections/money/2018/07/18/630267782/episode-472-the-one-page-plan-to-fix-global-warming-revisited https://www.npr.org/sections/money/2018/07/18/630267782/epis...
- kristofferR 8y agoA carbon tax on people? How would that work without massively invading people's privacy, it seems like it would require tracking everything people do and consume? (I don't have time right now to listen to the episode unfortunately).
- fjsolwmv 8y agoModern Monetary Theory argues that income tax (and alll other direct taxes) are unnecessary because the government can riase fund via fist money and its indirect taxation via inflation. This is effectively a tax on the entire economy and challenges every sector or segment to grow price (including labor wages!) or lose value.
- rataata_jr 8y agoThis is why we need crypto to become mainstream.
- RobertoG 8y agoThat's not what MMT argue precisely. The idea is that (for sovereign governments with its own currency) the government is the issuer of money and logically doesn't need to get money from the population or to borrow it in any market. Taxes have three possible purposes: create demand for the currency in the population, discourage some kind of spending or managing inflation. MMT stress that almost the only limit for government spending is inflation and that the concept of 'public debt' is irrelevant. What makes a country rich or poor it's not how much money have but what resources (natural resources, population, knowledge, infrastructure..) it has. The obvious corollary is that the way of improving the life of the future generations is not 'saving' or reducing the 'public debt' but investing in the country now. See a short overview here: https://theconversation.com/explainer-what-is-modern-monetary-theory-72095 https://theconversation.com/explainer-what-is-modern-monetar... For example, related to the subject at hand, if the Chinese government wanted to start a big infrastructure project, being the issuer of the currency, it doesn't need any kind of external financing or taxes. What could happen is that if the new project represent a big drag in the total economy, inflation would appear. A possible way of controlling this inflation is by retiring money from the economy by taxation.
- JoeAltmaier 8y agoNot as bad as all that. Only 180+M people earn enough to pay. At 28M paying, that's closer to 16% of those who should pay that are paying (not 2%)
- Proven 8y agoDon't you worry (or celebrate): the "poor" and middle class mainland Chinese are heavily exploited by the State and Party.
- justfor1comment 8y agoRunaway thought: Could all taxes be removed and replaced with the government simply printing money for its initiatives? Income tax is such that the rich are supposed to pay more than the poor but that does not happen in practice. The rich hire smart people to find loopholes and avoid taxes. Sales taxes are such that the government can dissuade people from harmful activities like smoking by levying heavy taxes on it. An alternative could be to print money for initiatives that the government wants to support like nicotine patches for example. The US government has already done something similar before with quantitive easing without much impact to the economy. So there is a possibility that this might work.
- Markoff 8y agoI find it obscene people in west are fine with idea of having their income taxed and then with this taxed money they go and pay for products/services taxed again with VAT, why people consider this normal?
- zangrc 8y agohttps://www.economist.com/china/2018/12/01/why-only-2-of-chinese-pay-any-income-tax https://www.economist.com/china/2018/12/01/why-only-2-of-chi...