China’s billionaire class will soon face higher tax bills as the country prepares to launch a tax reform law that critics say will raise income taxes and cut social spending, including pensions and health care.
On Thursday, the People’s Bank of China (PBOC) said that a plan to raise income tax from 10% to 20% in 2019 will be introduced.
Under the proposal, the top rate of 15% will rise to 20%, the lowest rate to 12%, and the rate of 0% to 2%.
Under the current tax system, the richest 10% of Chinese citizens pay taxes at the highest rate of 28%.
The top 1% of earners pay at a rate of 13%.
But the PBOC said in its announcement that it would allow for a “taper of tax increases” in 2019 to raise revenue.
Under its proposal, it said the top 1%, or the top 10%, would pay 9% of all taxes in 2019, down from 9% in 2018.
The plan would also allow households to deduct the value of income from the value added tax, or VAT, which was introduced in 2019 and would be phased in from 2019 to 2020.
The PBOC also said that the top income earners would no longer be able to deduct their share of a home’s value as the property’s value is based on the market value.
Under current tax rules, a household with a home worth over $50 million would be taxed on its value, while the same household with the same house worth $30 million would have a tax liability of $9 million, or $2,500 per year.
Under PBOC’s proposal, households will also be allowed to deduct all of their state taxes from the amount of their taxable income.
“This will allow people to pay taxes even if they live abroad and pay taxes on their income abroad,” said Zhang Qiang, an economist at Shanghai Jiaotong University.
The tax reform plan, which is expected to be submitted to the legislature next month, will be one of the biggest changes in China’s corporate tax system in more than a decade.
Under Chinese law, corporations are allowed to pay lower taxes than they earn from their business, but they must still report their tax returns to the government.
The new tax system will mean a significant tax cut for the rich, as they will be able deduct their profits from their taxes and pay lower tax rates than those of their lower-income counterparts.
Under previous reforms, corporations paid no tax on the profits they made.
Under a proposal released by the Communist Party last year, the rich would pay taxes of 12% on the value and 25% on earnings above $1 million, with the top 5% paying 15%.
Under its current tax reform, the PBIC said that it was looking at a tax structure that would allow people who earn over $500,000 to pay the same tax rate as those who earn less than $50,000.
China’s top income earner, Wang Zhiming, the founder of Suning Capital, has earned $7 billion from his holdings in China.
Under China’s new tax reform plans, Wang would not be able use his tax deductions to pay a lower tax rate.
Under an earlier proposal released last year by the PBEC, Wang, who was the richest Chinese individual at the time, would have been able to take advantage of the system to reduce his taxable income, but under the new system, Wang will have to file his tax returns with the government and pay a 10% tax on his income.