Tackling income tax evasion

For the majority of people on low and middle incomes, salaries constitute the lion's share of their incomes. But rich people usually have diversified channels of income. Besides corporate profits or high salaries, gains from investments in the capital, antique or art markets, or gains from property rentals or private financing provide a large portion of their incomes. The country has so far not set up an effective means to levy taxes on the incomes gained through such investment activities, which means this income is not taxed.

Due to the unreasonable individual income distribution pattern, the gap between the rich and poor has become an outstanding issue that will seriously hamper the nation's economic development and social harmony if it remains unresolved. The central government has vowed again that the country's income distribution system will be reformed, but it needs actions to match the words.

The primary income distribution policies should prioritize the pursuit of efficiency, but equitableness and fairness should be taken into consideration in the secondary income distribution. Given that China's current tax system has compromised social fairness, decision-makers should make efforts to improve it. Taxation should serve as an effective means to promote fair income distribution.

Some hold that every citizen has a taxpaying obligation and thus there is no need to raise the 3,500-yuan tax threshold. Such a viewpoint is open to discussion given that taxpaying obligations are not reflected in the individual income tax alone. In their daily consumption, people also pay a certain amount of implicit tax. Raising the current individual income tax threshold would reduce the tax burden on low and middle-income earners and concentrate the individual income tax on wealthy people instead of poor ones.

Another viewpoint is that taxing the rich will accelerate the flow of domestic private capital out of China. This is an unnecessary concern. There are many reasons for the emerging trend of rich people emigrating abroad, such as their dissatisfaction with the domestic market environment in which private capital is squeezed by State capital, and the problems in the country's medical, education and pension systems.

Making no increased efforts to resolve these problems and using preferential tax policies alone to try and keep rich people at home will prove impotent and will not narrow the gap between the rich and poor.

The author is a Shanghai-based economics commentator.

(China Daily 03/19/2013 page9)