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China's economic recovery
EconomyChina Economy

China’s personal income tax revenue soars 13% as top earners face tighter compliance

Local authorities are turning to stricter tax enforcement to shore up mounting budget strains, even as broader income growth lags

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A man stands at a crossroads in Lujiazui financial district in Pudong, Shanghai, on March 5, 2021. Photo: Reuters
Emma Main Shanghai

With China’s personal income tax revenue jumping more than 13 per cent in the first half of the year – outpacing income growth by nearly eight percentage points – analysts said the gains were largely driven by local tax compliance campaigns targeting higher-income earners.

Data released by the Ministry of Finance on Wednesday showed that personal income tax collections reached 898.2 billion yuan (US$132.7 billion) in the first six months of the year, up 13.1 per cent year on year. Estimates by Shenwan Hongyuan Securities, a Shanghai-based brokerage and investment firm, also pointed to personal income tax revenue rising by about 17 per cent in June, marking a 4.7 percentage point acceleration from a month earlier.

“The drivers behind June’s brisk growth remained unchanged from May,” said Ge Yuyu, a professor at the Shanghai National Accounting Institute.

In June, the Tax Science Research Institute – a research body affiliated with the State Taxation Administration – attributed this year’s uptick to three main factors: active capital markets, robust growth in sectors such as finance and technology and stricter enforcement by tax authorities.

“The three drivers all point to one reality: the surge in personal income tax receipts is mainly being driven by high-net-worth individuals. Wage growth among average earners contributed little to the expansion,” Ge said.

Domestic lenders typically classify individuals as high-net-worth when they hold at least 10 million yuan (US$1.48 million) in liquid assets, including cash, equities and bonds.

Wall Street investment bank Goldman Sachs cited another factor behind the growth in a Wednesday report, stating that “anecdotal evidence suggests that some local governments, under financial strain, have collected tax revenues more aggressively”.
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