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Grace Ng

The Straits Times

Publication Date : 07-02-2013

China has signalled it will be taking more from the rich to give to the poor as part of a long-awaited plan aimed at narrowing the country's huge income gap and containing social discontent.

Wealthy individuals, property speculators and foreigners will pay more taxes under a wide- ranging blueprint unveiled on Tuesday evening.

The plan pledges to redistribute more income to poor farmers and migrant workers, while tackling "serious problems with invisible and unlawful sources of income". It will require state monopolies to surrender a bigger chunk of their profits and cap their top executives' pay, while hiking a consumption tax on luxury goods.

The guidelines call for a removal of tax waivers for expatriates' personal income as well as dividend and capital gains in China.

This could make it less attractive for foreigners to work in China, said Grace Shi, a Beijing- based partner at tax advisory Ecovis. "The proposed rule is part of the Chinese government's intentions to offer equal tax treatment and job opportunities to locals and foreigners."

The document, which Beijing has been working on since 2004, was expected to be released late last year as outgoing Premier Wen Jiabao's last key initiative.

It was delayed amid an internal tug-of-war over how much the interests of state-owned enterprises (SOEs) would be reined in.

But now that it has been released, analysts say its sweeping statements are short on details on exactly how to close the politically sensitive rich-poor gap.

"This is only a framework. Specific measures are needed, which could take several months or years to come out," said Renmin University professor Liu Erduo.

Discussions on how to carry out the 35-point plan will likely be high on the agenda at the annual meetings of the national parliament and the country's top political advisory body next month, when incoming President Xi Jinping and Premier Li Keqiang will take office.

Social welfare has been a top priority for Li. He has championed an urbanisation push to offer better health care, affordable housing and public services, as some 300 million rural residents are expected to move to cities in the next 20 years.

The aim of the blueprint is for these policies to be financed in part by increased contributions from the state sector.

In 2011, SOEs handed over only about 8 per cent of their one- trillion-plus yuan in profits to the state. The new blueprint calls for them to give an additional 8 per cent of their earnings by 2015.

Other tough reforms could take even longer to implement, said observers. In particular, limiting the pay increases of SOE executives and levying a nationwide property tax could be blocked by vested interests like well-connected officials and honchos with high pay and multiple properties.

Already, Beijing has indicated it will postpone the expansion of its pilot property tax, which started in Shanghai and Chongqing in 2011.

Despite the obstacles, the new Xi-Li administration has to "make breakthroughs" in these areas in view of growing public pressure, said government think-tank researcher Yuan Gangming.

"There is huge social discontent about the rich-poor gap and corruption," he said.

China's Gini coefficient indicates a relatively high income inequality level of 0.47, official data said. But a private study in 2010 reckons that it could be higher - at 0.6. The threshold level is 0.4, above which social unrest escalates.

Beijing resident Gui Biao, 26, earns 5,500 yuan (US$874) a month, which is already three times the national average of 1,800 yuan for urban residents. But the insurance agent still feels relatively poor as living expenses soar.

Gui expects the rich-poor gap to continue to widen.

"The rich in China have shady ways to become even richer; they will get around the government's new blueprint."