Inheritance levy faces opposition despite wealth gap

PUBLISHED : Wednesday, 28 July, 1999, 12:00am
UPDATED : Wednesday, 28 July, 1999, 12:00am

Economists have proposed that Beijing introduce an inheritance tax to help pay for tax cuts and offset the rising disparity in incomes.

However, sharp differences over the proposal mean such a tax is unlikely to pass this year.

One proposal in front of the government is an inheritance tax. Its proponents argue it would help to correct increasing disparities in income and bring in revenue to offset tax cuts designed to boost spending.

A Ministry of Finance spokesman said such a tax was being discussed and would need to be passed by the National People's Congress (NPC).

'From the point of view of economic theory, such a tax would boost consumption, at a time when China is going through deflation. But whether such a tax will be passed by the NPC or when is hard to say,' he said.

An inheritance tax was first proposed in 1994 and was initially on the NPC agenda for this year.

'The government will need to raise taxes to finance stimulus measures,' an economist said.

'But, in the current deflationary climate, an inheritance tax would not be appropriate when you are trying to persuade people to spend more, even though it is right from the point of view of social justice,' he said.

The tax starting level is contentious. The lower the level, the stronger would be public opposition, while a higher level would bring in less revenue. There is also concern about how effectively such a tax could be implemented when there is already widespread tax evasion.