Cabinet adviser denies media reports amid heated debate over China's inheritance tax law

PUBLISHED : Wednesday, 02 October, 2013, 11:49am
UPDATED : Thursday, 03 October, 2013, 11:33am

A cabinet adviser has denied claims he told media that a draft inheritance tax law would be discussed at an upcoming annual Communist Party convention amid heated public debate over its feasibility.

Liu Huan, a member of the Counsellors’ Office of the State Council, said he had not given any media interviews regarding the inheritance tax law in September, nor had he ever obtained any documents of the third plenary session of the 18th Central Committee of the Communist Party, according to a statement published on the Office’s official website on Tuesday.

“Certain media reports containing distorted and inaccurate information obtained from illegitimate channels have damaged my reputation, thus I reserve the right to take legal action,” read the statement attributed to Liu.

The statement was issued in response to a report published last week in the 21st Century Business Herald that has stirred discussion on whether China is ready to embrace its first inheritance tax.

Another indication that points to a possible introduction of the law was a State Council document issued in February that called on local officials to explore ways of levying an inheritance tax at an “appropriate time”.

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

Supporters applauded the proposed tax as an instrument to reduce the widening wealth gap and to encourage social mobility. But many critics complained it would exert more pressure on a population already burdened by numerous taxes. Others said the threshold was set too low to benefit the general public.

“What is controversial here is not the tax itself, instead it is the threshold,” said Professor Goncalo Santos of the Hong Kong Institute for the Humanities and Social Sciences at the University of Hong Kong.

Santos said 800,000 yuan sounded “less like a tax on the rich but on the entire middle class population.” He also raised the concern that the Communist Party might want to use the tax as a means to financially weaken the growing middle class in China, who he said were perceived as a growing threat to authority.

Citing the example of French actor Gerard Depardieu, Santos said the introduction of the law could trigger waves of overseas migration. Depardieu gave up his French passport to evade hefty taxes in his native country.

“[The possible introduction of the law] follows a trend in China in which government is trying to rein in indirect taxation and to increase direct taxation,” said Qiu Dongmei, a law professor at the University of Hong Kong who specialises in China’s taxation system.

Direct taxes, which include taxes on inheritance and personal income, are paid directly to the government by the person on whom they are imposed. They now account for 25 per cent of all taxes in China. Indirect taxes, including value added tax, business tax and consumption tax, account for 68 per cent.

Qiu added that the government divisions that co-ordinate with the tax collection department are also important in the execution of taxation.

“Whether authorities can effectively execute tax collection will eventually decide how the law is drawn up,” she said, adding it was understandable that the general public had reacted fiercely towards the news.

“People in China have become increasingly aware of the impact that taxation can have on them.” She said.