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How does Chinese society treat the rich？ When it comes to passing down wealth through family， people can leave all their personal belongings to heirs and the recipients do not need to pay a penny of tax for their inheritance to the state， unlike what is required in many other countries.
However， pressure for change is emerging despite huge controversies.
On September 23， the 21st Century Business Herald， a business newspaper published in Guangzhou， Guangdong Province， said that the country’s top leadership was considering the introduction of inheritance tax. The report cited Liu Huan， a State Council counselor and professor at the Central University of Finance and Economics in Beijing， as saying that a draft of the proposal had already been submitted for discussion at the Third Plenary Session of the 18th Central Committee of the Communist Party of China （CPC）. The meeting was held in Beijing on November 9-12 to discuss and lay out plans for comprehensive reforms in the country.
Although Liu， in a statement on October 1， clarified that he did not make the announcement and had not participated in the preparation of or read any documents for the Party session， the issue of inheritance tax has already become a popular topic of discussion online and among media outlets.
According to Sina Weibo， the most popular micro-blogging service in China， within a week after the 21st Century Business Herald’s report， more than 1 million posts discussing inheritance tax were published. Many expressed concerns that the tax may risk stifling the coun- try’s emerging middle class.
Concerning the sudden burst in debate， multiple tax experts responded separately， stating that China is unlikely to introduce inheritance tax in the near future due to current difficulties.
“Implementing inheritance tax requires not only technical， but also social preparation，” said Shi Zhengwen， Director of the Research Center for Fiscal and Tax Law of China University of Political Science and Law in Beijing. According to him， the mature system needed to assess the value of inherited assets， including personal or movable property and real estate， does not yet exist in China.
In the works
Inheritance tax concerns both any levy paid by a person who inherits money or property and also any tax on the estate of a deceased individual. “Its basic aim is to create social fairness by balancing wealth distribution within society and narrowing the gap between the rich and poor，” Shi said. Inheritance tax was allegedly considered by the state leadership as early as 1993. At that time it was considered a way of promoting China’s market economy， but it was eventually decided that it would not be put into practice.
China’s 10th Five-Year Plan （2001-05） also proposed levying the tax then. In 2004， a draft regulation for inheritance tax was rolled out by the Ministry of Finance， but was ultimately not implemented.
In 2008， the Ministry of Finance revealed it was researching the possibility of an inheritance tax， saying that， based on the experiences of other countries， the tax could help boost social programs.
Two years later， a revised version of an inheritance tax draft became available in 2010 and provided more details， including a proposed tax threshold of 800，000 yuan （$131，120） and different tax rates varying from 20 to 50 percent based on the value of the inheritance. However， the draft also failed to be accepted， allegedly due to the lack of necessary asset declaration provisions and systems.
Before this latest debate over inheritance tax began in September， a document issued by the State Council， China’s cabinet， in February again proposed introducing an inheritance tax at the “appropriate time.”
In addition， there were two research reports in favor of such a tax that were published earlier this year.
In the first report， Feng Qiaobin， a professor at the Department of Economics of the Chinese Academy of Governance， stated that China’s economic development has laid foundation for levying inheritance tax， and the growing gap between the rich and poor has made the tax more necessary than before.
A Peking University survey found that in 2012， the bottom 25 percent of China’s households accounted for just 3.9 percent of total national income， compared with 59 percent for the top 25 percent of earners.
Inheritance tax also has symbolic meaning in ensuring social equality and justice， Feng said.
In March， the China Institute for Income Distribution （CIID） at Beijing Normal University made public a separate report titled The Inheritance Tax System and Its Inspiration for Income Distribution in China， saying that the country already meets most of conditions necessary to impose inheritance tax.
In the report， the CIID listed positive effects that would be brought about by inheritance tax， including promoting social equity， spurring economic transformation and narrowing the income gap. Given China’s total tax revenue of more than 10 trillion yuan （$1.63 trillion） in 2012 and empirical data from other countries， inheritance tax could generate an estimated annual income of 200 billion yuan（$32.63 billion） for the government， the CIID report said.
As most people’s inheritance comes in the form of real estate， imposing the tax could also help deflate the housing bubble and bring down housing prices， the report added.
Zhu Daqi， Deputy Executive Director of the Economic Law Research Center at the Beijingbased Renmin University of China， believes that inheritance tax should redistribute wealth.“Currently， a serious problem facing our society is the increasing polarization between the rich and poor，” Zhu said.
Overcoming the obstacles
However， Liu Shangxi， Deputy Director of the Institute for Fiscal Science Research under the Ministry of Finance， pointed out that it would take at least three to four decades before inheritance tax could actually be levied in China.
China’s 70-year limit on real estate leases will also complicate the issue， Liu said. In China， private property can be leased for only 70 years and although the leasehold can be automatically extended， the costs incurred in extending are not yet specified.
Liu also said that the tax is likely to meet opposition because it challenges traditional Chinese beliefs that parents should rely on their children to take care of them and leave their property， especially a house， to their offspring as inheritance.
One focus of the ongoing debate is the “unreasonable” tax rates and threshold proposed in the 2010 revised draft.
“The 800，000-yuan threshold can be easily reached now in China， especially in firstand second-tier cities where housing prices have been soaring，” Liu said. A 100-squaremeter house in Beijing could easily be worth 3 million yuan （$491，700）， based on the average price measured in August by the China Index Academy.
In response， the CIID report suggested raising the tax threshold to 5 million yuan（$819，500）， which some experts believe is still low when considering the current real estate market.
Fan Yong， Vice Dean of the School of Taxation at the Central University of Finance and Economics， is one such advocate of an adjustment. “There should be a precise and scientific study of China’s special national conditions， such as the overall property status of the common public， to determine the threshold and methods for levying inheritance tax，” he said. Feng， with the Chinese Academy of Governance， also stressed that the tax should be paid by the very wealthy rather than common people. “A baseline for the levying of inheritance tax is that it won’t hurt the middle class，” she said， calling for further studies of such a threshold so as to avoid taxing the average household.
Difficulty in ensuring the fairness in implementation is what hinders the introduction of inheritance tax in China. Therefore， some supporting measures like a property registration and evaluation system should be established and perfected before the nation starts levying the tax， according to Feng.
“Meanwhile， the valuation system also gives cause for concern， since art collections and real estate fall within the scope of the proposed tax，” said Wang Zhenyu， a researcher with China University of Political Science and Law， adding that families will be tempted to undervalue their assets and that this creates opportunities for corruption.
Wang Fang， a senior partner at Beijing-based Dacheng Law Offices， suggested that future schemes must take the vastly different levels of income in China into account. “Decisions must be based on the thorough and meticulous collection and analysis of data，” he said.
Wang also noted that a national system for asset and property rights information for individual citizens should be established before the government starts collecting inheritance tax.
China has begun to piece together such a private asset and property information platform in recent years. In December 2011， the central bank required commercial banks to verify the identities of their depositors by the end of 2013.
“A full discussion is needed before inheritance tax can be implemented，” said Shi， at the China University of Political Science and Law， adding that the move requires long-term consideration.
However， pressure for change is emerging despite huge controversies.
On September 23， the 21st Century Business Herald， a business newspaper published in Guangzhou， Guangdong Province， said that the country’s top leadership was considering the introduction of inheritance tax. The report cited Liu Huan， a State Council counselor and professor at the Central University of Finance and Economics in Beijing， as saying that a draft of the proposal had already been submitted for discussion at the Third Plenary Session of the 18th Central Committee of the Communist Party of China （CPC）. The meeting was held in Beijing on November 9-12 to discuss and lay out plans for comprehensive reforms in the country.
Although Liu， in a statement on October 1， clarified that he did not make the announcement and had not participated in the preparation of or read any documents for the Party session， the issue of inheritance tax has already become a popular topic of discussion online and among media outlets.
According to Sina Weibo， the most popular micro-blogging service in China， within a week after the 21st Century Business Herald’s report， more than 1 million posts discussing inheritance tax were published. Many expressed concerns that the tax may risk stifling the coun- try’s emerging middle class.
Concerning the sudden burst in debate， multiple tax experts responded separately， stating that China is unlikely to introduce inheritance tax in the near future due to current difficulties.
“Implementing inheritance tax requires not only technical， but also social preparation，” said Shi Zhengwen， Director of the Research Center for Fiscal and Tax Law of China University of Political Science and Law in Beijing. According to him， the mature system needed to assess the value of inherited assets， including personal or movable property and real estate， does not yet exist in China.
In the works
Inheritance tax concerns both any levy paid by a person who inherits money or property and also any tax on the estate of a deceased individual. “Its basic aim is to create social fairness by balancing wealth distribution within society and narrowing the gap between the rich and poor，” Shi said. Inheritance tax was allegedly considered by the state leadership as early as 1993. At that time it was considered a way of promoting China’s market economy， but it was eventually decided that it would not be put into practice.
China’s 10th Five-Year Plan （2001-05） also proposed levying the tax then. In 2004， a draft regulation for inheritance tax was rolled out by the Ministry of Finance， but was ultimately not implemented.
In 2008， the Ministry of Finance revealed it was researching the possibility of an inheritance tax， saying that， based on the experiences of other countries， the tax could help boost social programs.
Two years later， a revised version of an inheritance tax draft became available in 2010 and provided more details， including a proposed tax threshold of 800，000 yuan （$131，120） and different tax rates varying from 20 to 50 percent based on the value of the inheritance. However， the draft also failed to be accepted， allegedly due to the lack of necessary asset declaration provisions and systems.
Before this latest debate over inheritance tax began in September， a document issued by the State Council， China’s cabinet， in February again proposed introducing an inheritance tax at the “appropriate time.”
In addition， there were two research reports in favor of such a tax that were published earlier this year.
In the first report， Feng Qiaobin， a professor at the Department of Economics of the Chinese Academy of Governance， stated that China’s economic development has laid foundation for levying inheritance tax， and the growing gap between the rich and poor has made the tax more necessary than before.
A Peking University survey found that in 2012， the bottom 25 percent of China’s households accounted for just 3.9 percent of total national income， compared with 59 percent for the top 25 percent of earners.
Inheritance tax also has symbolic meaning in ensuring social equality and justice， Feng said.
In March， the China Institute for Income Distribution （CIID） at Beijing Normal University made public a separate report titled The Inheritance Tax System and Its Inspiration for Income Distribution in China， saying that the country already meets most of conditions necessary to impose inheritance tax.
In the report， the CIID listed positive effects that would be brought about by inheritance tax， including promoting social equity， spurring economic transformation and narrowing the income gap. Given China’s total tax revenue of more than 10 trillion yuan （$1.63 trillion） in 2012 and empirical data from other countries， inheritance tax could generate an estimated annual income of 200 billion yuan（$32.63 billion） for the government， the CIID report said.
As most people’s inheritance comes in the form of real estate， imposing the tax could also help deflate the housing bubble and bring down housing prices， the report added.
Zhu Daqi， Deputy Executive Director of the Economic Law Research Center at the Beijingbased Renmin University of China， believes that inheritance tax should redistribute wealth.“Currently， a serious problem facing our society is the increasing polarization between the rich and poor，” Zhu said.
Overcoming the obstacles
However， Liu Shangxi， Deputy Director of the Institute for Fiscal Science Research under the Ministry of Finance， pointed out that it would take at least three to four decades before inheritance tax could actually be levied in China.
China’s 70-year limit on real estate leases will also complicate the issue， Liu said. In China， private property can be leased for only 70 years and although the leasehold can be automatically extended， the costs incurred in extending are not yet specified.
Liu also said that the tax is likely to meet opposition because it challenges traditional Chinese beliefs that parents should rely on their children to take care of them and leave their property， especially a house， to their offspring as inheritance.
One focus of the ongoing debate is the “unreasonable” tax rates and threshold proposed in the 2010 revised draft.
“The 800，000-yuan threshold can be easily reached now in China， especially in firstand second-tier cities where housing prices have been soaring，” Liu said. A 100-squaremeter house in Beijing could easily be worth 3 million yuan （$491，700）， based on the average price measured in August by the China Index Academy.
In response， the CIID report suggested raising the tax threshold to 5 million yuan（$819，500）， which some experts believe is still low when considering the current real estate market.
Fan Yong， Vice Dean of the School of Taxation at the Central University of Finance and Economics， is one such advocate of an adjustment. “There should be a precise and scientific study of China’s special national conditions， such as the overall property status of the common public， to determine the threshold and methods for levying inheritance tax，” he said. Feng， with the Chinese Academy of Governance， also stressed that the tax should be paid by the very wealthy rather than common people. “A baseline for the levying of inheritance tax is that it won’t hurt the middle class，” she said， calling for further studies of such a threshold so as to avoid taxing the average household.
Difficulty in ensuring the fairness in implementation is what hinders the introduction of inheritance tax in China. Therefore， some supporting measures like a property registration and evaluation system should be established and perfected before the nation starts levying the tax， according to Feng.
“Meanwhile， the valuation system also gives cause for concern， since art collections and real estate fall within the scope of the proposed tax，” said Wang Zhenyu， a researcher with China University of Political Science and Law， adding that families will be tempted to undervalue their assets and that this creates opportunities for corruption.
Wang Fang， a senior partner at Beijing-based Dacheng Law Offices， suggested that future schemes must take the vastly different levels of income in China into account. “Decisions must be based on the thorough and meticulous collection and analysis of data，” he said.
Wang also noted that a national system for asset and property rights information for individual citizens should be established before the government starts collecting inheritance tax.
China has begun to piece together such a private asset and property information platform in recent years. In December 2011， the central bank required commercial banks to verify the identities of their depositors by the end of 2013.
“A full discussion is needed before inheritance tax can be implemented，” said Shi， at the China University of Political Science and Law， adding that the move requires long-term consideration.