Inheritance tax law talk triggers heated debate in China

PUBLISHED : Tuesday, 01 October, 2013, 5:02pm
UPDATED : Tuesday, 01 October, 2013, 5:37pm

A poll showed that seventy per cent of the elderly in China believe that the cut-off amount for a prospective inheritance tax should be at least 10 million yuan (HK$12.6 million), during a time when death and taxes have been debated more fiercely than ever in China.

In addition, about half of the 500 elderly surveyed believe the cut-off amount should be between 10 and 20 million yuan (HK$12.6 million and 25.2 million), China News Service reported, citing a poll conducted by China Will Bank, a charitable organisation that helps senior citizens in drawing up legally binding wills for free.

The poll also revealed 95 per cent had sought advice on the property values of their homes when they were setting up their wills, underscoring how important aged population in China value their properties.

The survey findings are the latest development in an ongoing heated debate on an upcoming inheritance tax, triggered in February when the State Council, China’s cabinet, issued a document in which it called on local officials to explore the terms of levying the inheritance tax at an “appropriate time”.

The debate escalated after reports emerged saying that a preliminary proposal for inheritance tax would be brought up at the annual Chinese Communist Party convention in November, in which major state executive and legislation decisions are often made.

Under the latest revised version of the proposal, the cut-off amount for inheritance tax is 800,000 yuan (HK$1.01 million), and net successions of 5 million, 10 million, and 30 million yuan will be subject to tax amounts of 840,000 yuan, 2.09 million yuan, and 10.34 million yuan respectively, according to government calculations.

From the government’s point of view, levying an inheritance tax has advantages —it could help to curb China’s ever-yawning gap between the rich and the poor, subsidise local governments’ increasing debt pile and to improve social mobility, as part of the government’s approach to adjust social income distribution.

But many have found the cut-off amount of the tax at 800,000 yuan too low to accept, arguing it is not a tax levied on the super rich but also on the vast middle-class population, or more specifically the private entrepreneurs who have already been hit by various heavy taxes on their business operations.

A commentary on The Beijing News compared the proposed law with its counterpart in the United States, where it said the threshold was set at over US$5 million (HK$38.8 million) across the sea.

“If government collects inheritance tax starting from 800,000 yuan, it won’t be an adjustment of income distribution, but grabbing people’s wealth,” the article said.

An avid blogger wrote on news portal “I can barely think of anyone who can evade inheritance law considering even peasants’ lands would be worth quite a lot in the future.”

For many others, whether the general public can benefit from government spending of the tax revenue collected is the real concern. Some are afraid that the government’s efforts to redistribute wealth may be hampered by the country’s weakened social welfare systems and bureaucratic decision-making processes long criticised as being nontransparent.

“Inheritance taxation does not simply end after the government collects it. The authority also has to tell the public how it will spend it,” a Sina blogger said.

Media commentator He Jiangbing urged the government to make it clear where tax revenue is spent in implementing the law. He was concerned that hastily introducing the law might trigger waves of migration to overseea and push the middle-aged rich to accelerate the transfer of assets to their children.

Jia Kang from the China Centre for International Economic Exchanges told China National Radio that the introduction of the law must be in line with a sound system where the government could accurately record and assess the values of household properties. But he pointed out such a system is still be far from flawless.

Experts also noted the worldwide trending of countries phasing out inheritance tax law. The Beijing News reported that Canada, Australia, New Zealand, Italy have all scrapped the law, while Hong Kong and Singapore phased out theirs several years ago.

Explaining the trend, the article said it was due to laws that turned out to damage the middle-class the most, while tax cuts were preferable as they helped to attract talent and capital.