China’s ’35 Point Plan’ Seeks to Reduce the Wealth Gap

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Feb. 8 – Beijing has signaled it will be pushing forward with proposals to implement a “35 Point Plan” that will be under discussion at the CCP annual meetings next month. The meetings, which will see the new leadership under President Xi Jinping and Premier Li Keqiang formally unveiled, are expected to usher in a variety of changes to the state taxation system. Concerned about the growing income inequality gap, the 35 Point Plan (introduced on the Central Government’s website under the rather misleading title “Income Distribution Plan”) includes a number of discussion topics that could alter China’s tax and social contribution structures, such as:

  • The revisal and/or removal of exemptions for foreign individuals on dividend and bonus incomes received from foreign-invested enterprises
  • A ceiling to be imposed on salary levels for executives of China’s SOEs
  • Improved tax collection among China’s SOEs
  • The imposition of a nation-wide property tax

Of note here is the government’s aim to improve its fiscal tax collection from SOEs. In 2011, Chinese SOEs contributed about 8 percent of their combined RMB1 trillion in declared profits to the Chinese treasury, way below the official CIT rate of 25 percent. The proposed plan calls for them to effectively double that by 2015.

While the 35 Point Plan has yet to be fully debated, getting some of these measures through and passed onto the statute will surely be tough for the new Chinese leadership. However, calls to do away with some of the preferential tax policies afforded foreign individuals under Caishuizi [1994] No. 020 won’t likely be a political hot potato, and the removal of some tax exemptions for foreigners are likely to pass through the CCP without many objections.

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