China's Tax Terror: Beijing's Wealthy Under Siege in Economic Desperation

Chinese authorities are demanding wealthy individuals and companies double-check their taxes for unpaid liabilities in a move that threatens to further dent investor confidence in the world’s second-largest economy.

Tax officials in recent months have asked wealthy individuals and companies to carry out “self-inspections” of their tax payments and cough up any deficiencies, as local governments hunt for revenue to refill coffers depleted by a property slump. The tax drive comes as Beijing prepares to announce the details of a large fiscal stimulus this week that is expected to focus on restoring the finances of local governments, many of which are struggling to pay suppliers and employees. Economists are pinning their hopes on the package, the next phase in a stimulus push that started in September, to help revive household and investor confidence after two years of deflationary pressures driven by the property crisis. Beijing launched the push as economic growth in the third quarter fell short of the official target for this year of 5 per cent. The tax demands have stirred unease and even “fear” among the country’s wealthy in cities such as Beijing, Shanghai and Shenzhen, a China-based tax partner said. “Some of them simply didn’t really know what to declare when they were asked to conduct self-inspections,” the partner said. “Many also didn’t realise before . . . [that] their overseas personal gains would be subjected to taxes in China.” Companies that find nothing wrong…   during their self-inspections have been told to send in stamped attestations and “retain their evidence for inspection”, according to a notice in one city seen by the Financial Times. Authorities have also asked individuals to start paying back-taxes, including from their personal overseas investment gains, people familiar with the matter said, in some cases citing a little-used legal provision from 2019. A lawyer said his wealthy Chinese clients were able to engage in negotiations with tax officials, suggesting there was some “wriggle room” on their potential tax liabilities.

The drive by central and local governments to raise revenue, which also includes a large increase in fines and penalties on the private sector, follows a three-year property slowdown that has hit local authorities’ finances and undermined household and investor confidence.