Since the COVID pandemic began two years ago, a strict “zero-COVID” policy has been implemented in China, making it harder for local authorities to pay their bills. Recently, many cities on the mainland have been doing tax audits.
Hainan Province is the first to target high-income individuals for tax scrutiny. Hainan will choose 50 audit objects at random to do in-depth self-checks on. Netizens thought that because local budgets were tight, the authorities had no choice but to aim at the rich to cover the deficit.
There’s a term called “double high” groups, which means high net worth and high-income groups.
The Hainan tax agency announced last Wednesday, September 22, that tax audits for these “double high” groups would start this year. And the tax inspection method will be “double random.” The investigation will last until October 9 and will look into 50 audit items. Important inspection objects are analyzed and screened based on risk as part of the taxpayer’s self-inspection.
“Double randomization and one disclosure” is a new approach to tax audits that has been pushed in recent years. It means that inspection objects and law enforcement inspectors are chosen randomly throughout the supervision process, and random inspections and investigations are made public at the right time.
The “double high” category has been the most common group of people who cheat on their income taxes. However, tax breaks for this group are used to get people to invest in some parts of the mainland.
Experts expose the scheme
Xie Tian is a professor at the University of South Carolina. He says that tax inspections have become more strict in Hainan Province.
On the surface, it is to investigate tax evasion and tax evasion. But in reality, the growing local fiscal deficit is its crucial motive.
Prof. Xie Tian said: “Even large international cities like Shanghai run into financial deficits. Of course, this is related to the fact that the Chinese economy focuses on developing real estate in an unusual way. And the entire Chinese economy is in a sharp decline, along with the implementation of Xi Jinping’s “Zero-COVID” policy. This has caused the entire industrial production chain to be closed. Economic recession, financial revenue decline, local governments are forced to take money from the rich or specifically target other group of people for money.”
Prof. Xie Tian said local authorities make money when taxing “double-high” people.
Prof. Xie Tian said: “In fact, tax evasion is a very common problem in China. It depends on whether you pay a bribe to open a backdoor, or to avoid other tax channels. There are also new taxes and fees being added all the time to impoverish Chinese people to the utmost. It’s a heavy load for a business owner or a small business. If you pay taxes exactly like that, you won’t be able to survive, so you can’t avoid tax evasion because there are too many unfair and random taxes.”
According to China’s audit report, from 2018 to 2021, more than 550 high-income people in 22 provinces and cities avoided paying more than $660 million (4.722 billion yuan) in personal taxes.
In March 2021, China came out with a report saying that “double high” personnel should have more tax and fee oversight. Then, tax officials from several counties looked into the live broadcasting and entertainment industries. Chinese media says that last year, tens of thousands of live broadcasters had proactively paid their taxes without reminder.
Huang Shicong is a Taiwanese economic expert.
He said: “There’s one more reason why China’s finances are in the worst shape they’ve ever been. Especially local governments are already having trouble paying their bills. Because they have had to pay for COVID measures costs in recent years, from testing for nucleic acids to sending out medical workers to maintaining stable personnel, and material resources. Huang Shicong added, “this has put a lot of strain on the local budget, so the local government has put in place some policies to find ways to get more money from the people.”
Due to China’s strict Zero – COVID policy, 31 provinces in China had budget deficits in the first half of this year. Compared to last year, the first eight months this year saw a 6.5% drop in local government revenue. In some places, government workers haven’t been able to get paid. Different places have used random fees, fines, and apportionment to bring in tax money.
Huang Shicong thinks high-income groups will be audited like this to extract more money, and the practice will soon become commonplace.