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Disclosure: 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 t

Disclosure: 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 ago
If 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.
- awsedr58479 8y ago
  I have a few guesses here. Firstly because the CCP is quite old Mao-style structure, old and bureaucratic. Lots of "regulations", little actions. Other guesses like it's being setup, they're trying to avoid mass reactions from people, etc. Just as a note, I'm quite sure Uyghurs have their bank account heavily tracked and wouldn't go away with transactions the same way Han Chinese would.
- onetimemanytime 8y ago
  >>If this is the case, why wouldn't the state be in favor of strict AML regulations? Because their families might get caught in the billion dollars corruption schemes. And as others said, it may choke growth. USA wasn't always this strict with ML. >>Aren't they very afraid of Uighur terrorism? No doubt that they are under heavy scrutiny. Aren't they very afraid of Uighur terrorism?
  - onetimemanytime 8y ago
    They are and they aren't. Everything is monitored and probably xx% of Uighurs rats on their neighbors. It has happened before in Communist /East European countries. Brother against brother, neighbor against neighbor, son against father...
oh-kumudo 8y ago
I don't think I can directly answer your questions, but few facts: 1. Chinese enterprises have really high taxes. 2. China has VAT, which is 16%, quite significant. 3. Chinese consumption tax directly factored into the end product price, everyone is paying taxes everyday, they just don't feel it.
- awsedr58479 8y ago
  1- and this is precisely my point. If they start enforcing it, it would kill the smaller businesses in the current situation - and probably put thousands (millions?) of people in the street.
  - oh-kumudo 8y ago
    China is an interesting case. Where they are not enforcing it in a strict sense, but at the same time they are not completely leaving the regulation on the book. So the end result is a system that selectively enforcing its own regulations. In short, everyone is violating the regulations in some sense, but if the government doesn't come to your door, you are probably fine. But they would start campaigns now and then to check upon on you, and once they do, and you are not prepared, you probably will end up in trouble. I too wonder how well such system works, but I guess China is in high growth mode for many many years, and we all know that growth can cover up problems. Once it slows down, it might be the beginning where things start to get interesting.
    - deleted 8y ago
      [deleted]
    - seanmcdirmid 8y ago
      This is also known as rule by law, where laws are selectively enforced to rule the people, vs rule of law, where the goal is to enforce laws uniformly to protect the people.
- chvid 8y ago
  Exactly. People forget that high levels of income tax in the western world is actually a fairly new thing. Denmark for example introduces income tax withheld by the employer in 1970 (kildeskat). Before that the situation looked much more like China today. And the size of the Danish public sector was much smaller.
echevil 8y ago
> Where does the government's money comes from Looks like many people are interested in this. Combining some information from Chinese websites, the main sources of Chinese government includes the following: - Tax income: The top categories of tax income are value-added tax and business tax. - Operation income of state-owned companies. - Income from state-owned properties. e.g. A chunk of income of local governments come from selling lands to real estate companies. - Government debt. These may not be super accurate, but just to give an idea.
adinobro 8y ago
I'm living in China at the moment. Feel free to ask any questions. Here are some points that you might find interesting: 1. There is an income tax but there is no income tax return. If you pay too much you don't get anything back. You can pay a fine if you don't pay enough. This means you have to work with finance and do lots of paperwork to reduce your taxable income. Not always worth the effort. 2. You can choose to pay sales tax or not. It is optional. Generally, individuals don't pay sales tax while companies do. Companies have to prove that they spent money and they do this by collecting "tax receipts". Some companies give everyone a tax receipt. Some companies only give it on request. The machine that makes the tax receipt takes money from the company in real time and transfers it to the government. This cannot be faked BUT they can be traded ... sometimes. VAT/Sales tax is also different for different industries (I think food is about 5% while electronics is more) Basically, individuals have more freedom than many western countries BUT companies have a lot more restrictions. It is a very clever system that "mostly" works.
- Buge 8y ago
  If you can choose whether or not to pay sales tax, why would anyone ever choose to?
  - rtpg 8y ago
    No sales tax => no receipt I went to a restaurant and they offered us a drink at the end of the meal in exchange for no asking of receipts
    - jacquesm 8y ago
      That goes a lot further: no receipt: no taxes at all, not just no sales tax.
  - zhte415 8y ago
    Because the poster is presenting in perhaps a difficult way to understand. Listed prices are inclusive of VAT/sales tax, there's a single price listed. Companies can reclaim VAT/sales tax from the tax office on presentation of valid receipts. Depending on product, sales taxes vary from 4% to 1Xs%. Pretty similar to how reclaiming VAT works in the EU. Individuals could, for example, request a discount from a restaurant for not requesting a tax receipt (discount being in the form of some free Sprites or other small token). Smaller places might accommodate this, larger ones would not.
z3t4 8y ago
Interesting idea to use inflation for tax means. China however doesn't appear to have much inflation compared to other countries.
cm2187 8y ago
> How will the people react when they will realize they have to give away XX% of their pay when they never gave any $$? The birth of a Chinese Republican party...
- pjc50 8y ago
  Good luck with that in a one-party state.
jacquesm 8y ago
One reason for sloppy tracking and sloppy enforcement is usually that the powers that be use those very same routes to get their own money out of the country. It's pretty rare for a corrupt official to keep their own money in a bank account in their own name in their own country. So it makes good sense that such routes exist.

Kaveren 8y ago

If 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.

awsedr58479 8y ago
I have a few guesses here. Firstly because the CCP is quite old Mao-style structure, old and bureaucratic. Lots of "regulations", little actions. Other guesses like it's being setup, they're trying to avoid mass reactions from people, etc. Just as a note, I'm quite sure Uyghurs have their bank account heavily tracked and wouldn't go away with transactions the same way Han Chinese would.
onetimemanytime 8y ago
>>If this is the case, why wouldn't the state be in favor of strict AML regulations? Because their families might get caught in the billion dollars corruption schemes. And as others said, it may choke growth. USA wasn't always this strict with ML. >>Aren't they very afraid of Uighur terrorism? No doubt that they are under heavy scrutiny. Aren't they very afraid of Uighur terrorism?
- onetimemanytime 8y ago
  They are and they aren't. Everything is monitored and probably xx% of Uighurs rats on their neighbors. It has happened before in Communist /East European countries. Brother against brother, neighbor against neighbor, son against father...

oh-kumudo 8y ago

I don't think I can directly answer your questions, but few facts: 1. Chinese enterprises have really high taxes. 2. China has VAT, which is 16%, quite significant. 3. Chinese consumption tax directly factored into the end product price, everyone is paying taxes everyday, they just don't feel it.

awsedr58479 8y ago
1- and this is precisely my point. If they start enforcing it, it would kill the smaller businesses in the current situation - and probably put thousands (millions?) of people in the street.
- oh-kumudo 8y ago
  China is an interesting case. Where they are not enforcing it in a strict sense, but at the same time they are not completely leaving the regulation on the book. So the end result is a system that selectively enforcing its own regulations. In short, everyone is violating the regulations in some sense, but if the government doesn't come to your door, you are probably fine. But they would start campaigns now and then to check upon on you, and once they do, and you are not prepared, you probably will end up in trouble. I too wonder how well such system works, but I guess China is in high growth mode for many many years, and we all know that growth can cover up problems. Once it slows down, it might be the beginning where things start to get interesting.
  - deleted 8y ago
    [deleted]
  - seanmcdirmid 8y ago
    This is also known as rule by law, where laws are selectively enforced to rule the people, vs rule of law, where the goal is to enforce laws uniformly to protect the people.
chvid 8y ago
Exactly. People forget that high levels of income tax in the western world is actually a fairly new thing. Denmark for example introduces income tax withheld by the employer in 1970 (kildeskat). Before that the situation looked much more like China today. And the size of the Danish public sector was much smaller.

echevil 8y ago

> Where does the government's money comes from Looks like many people are interested in this. Combining some information from Chinese websites, the main sources of Chinese government includes the following: - Tax income: The top categories of tax income are value-added tax and business tax. - Operation income of state-owned companies. - Income from state-owned properties. e.g. A chunk of income of local governments come from selling lands to real estate companies. - Government debt. These may not be super accurate, but just to give an idea.

adinobro 8y ago

I'm living in China at the moment. Feel free to ask any questions. Here are some points that you might find interesting: 1. There is an income tax but there is no income tax return. If you pay too much you don't get anything back. You can pay a fine if you don't pay enough. This means you have to work with finance and do lots of paperwork to reduce your taxable income. Not always worth the effort. 2. You can choose to pay sales tax or not. It is optional. Generally, individuals don't pay sales tax while companies do. Companies have to prove that they spent money and they do this by collecting "tax receipts". Some companies give everyone a tax receipt. Some companies only give it on request. The machine that makes the tax receipt takes money from the company in real time and transfers it to the government. This cannot be faked BUT they can be traded ... sometimes. VAT/Sales tax is also different for different industries (I think food is about 5% while electronics is more) Basically, individuals have more freedom than many western countries BUT companies have a lot more restrictions. It is a very clever system that "mostly" works.

Buge 8y ago
If you can choose whether or not to pay sales tax, why would anyone ever choose to?
- rtpg 8y ago
  No sales tax => no receipt I went to a restaurant and they offered us a drink at the end of the meal in exchange for no asking of receipts
  - jacquesm 8y ago
    That goes a lot further: no receipt: no taxes at all, not just no sales tax.
- zhte415 8y ago
  Because the poster is presenting in perhaps a difficult way to understand. Listed prices are inclusive of VAT/sales tax, there's a single price listed. Companies can reclaim VAT/sales tax from the tax office on presentation of valid receipts. Depending on product, sales taxes vary from 4% to 1Xs%. Pretty similar to how reclaiming VAT works in the EU. Individuals could, for example, request a discount from a restaurant for not requesting a tax receipt (discount being in the form of some free Sprites or other small token). Smaller places might accommodate this, larger ones would not.

z3t4 8y ago

Interesting idea to use inflation for tax means. China however doesn't appear to have much inflation compared to other countries.

cm2187 8y ago

> How will the people react when they will realize they have to give away XX% of their pay when they never gave any $$? The birth of a Chinese Republican party...

pjc50 8y ago
Good luck with that in a one-party state.

jacquesm 8y ago

One reason for sloppy tracking and sloppy enforcement is usually that the powers that be use those very same routes to get their own money out of the country. It's pretty rare for a corrupt official to keep their own money in a bank account in their own name in their own country. So it makes good sense that such routes exist.