As public finances are empty, wealthy people with overseas investments have become targets of the Chinese government, and relevant authorities require them to pay back property tax arrears.
Switzerland's Neue Zurich Zeitung (NZZ) recently published a report titled "The rich have become the prey of the government's pursuit of tax collections." It pointed out that due to the emptiness of public finances, the salaries of many urban civil servants in China cannot be paid on time. Forced by financial difficulties, "making money" has become a top priority for local governments. Rich people with overseas investments have become their targets, and the relevant authorities require them to pay back property taxes in arrears.
The report pointed out that according to relevant legal provisions, Chinese citizens have always been obliged to pay the so-called global income tax, that is, income earned from investing in stocks, bonds, real estate or deposits overseas. Until recently, however, investors could easily avoid paying taxes because Chinese authorities had no idea what their citizens were earning overseas.
China joined the so-called “Common Reporting System” as early as 2018. Under this system, banks and asset management institutions in participating countries will exchange information with each other, including foreigners’ accounts and income status, etc. But it was only recently that China's financial authorities evaluated the relevant data and gained an initial grasp of the approximate scale of tax arrears by its citizens. Jennifer Lu, a partner at Dezan Shira & Associates in Hong Kong, said: "China has moved from the preparation stage to the execution stage."
Over the past 25 years, hundreds of thousands of Chinese have entered the wealthy class. In 2001, the average income in China was only US$1,000 (approximately NT$32,000), but now it has soared to US$14,000 (NT$446,000). Currently, China already has 500 wealthy people with assets exceeding US$1 billion (NT$31.88 billion). Some of their assets are invested in London real estate, the US stock market or Western art collections. In Hong Kong banks alone, the amount of Chinese deposits has exceeded US$1.7 trillion (NT$54.2 trillion).
Under pressure from the government, tax authorities in many provinces across China have been sending letters, phone calls and text messages to people who owe taxes over the past few months. According to media reports, some tax authorities have also set up special operations teams to search for the whereabouts of billionaires.
Neue Zürcher Zeitung reported that as the authorities require the payment of tax arrears on overseas assets for the past three to five years before the end of October, uneasiness is spreading rapidly among the wealthy, and some people are even trying to escape their tax obligations by changing their nationality.
According to reports, the biggest problem is how to determine the amount of tax. Some people received back tax notices listing specific amounts, while others received just a general estimate. Relevant departments claim that the estimated taxes can serve as the basis for negotiations between the two parties. The way China's tax authorities operate does not seem to have formed a fixed pattern, but their determination to collect tax arrears is clearly unquestionable.
Many overseas investors are looking for ways to make up for their taxes. Some are taking out loans, while others are trying to transfer some of their overseas assets back home. But moving money isn't easy. According to China's strict capital flow controls, each Chinese person can only send US$50,000 (NT$1.594 million) overseas each year, and the collection of overseas remittances is also limited to US$50,000. However, some provinces have already signaled that they are willing to relax the remittance limits for tax defaulters, and the prospect of increasing fiscal revenue is obviously more attractive.
According to Barclays Bank's calculations of so-called "extreme circumstances", the properties of Chinese investors in Hong Kong alone can bring about 100 billion U.S. dollars (approximately NT$3.2 trillion) in taxes to the Chinese government. However, even if overseas investments in other parts of the world can bring similar amounts of tax revenue to China's public finances, it may still be difficult to fill the huge fiscal gap. China's total debt has exceeded more than 300% of gross domestic product (GDP).
