Is inheritance tax coming to China?

Alia | September 30th, 2013 - 11:13 pm

Beijing has been thinking about imposing inheritance tax since 2004, but nothing substantial ever happened. During the past weekend, however, news broke that the inheritance tax may be officially on the State Council’s agenda.

According to a draft inheritance tax law from 2010, exclusion starts at RMB 800,000 yuan with rates ranging from 20% to 50% depending on the bracket. Using the formula laid out in the draft, legacies worth RMB 5 million yuan will cost the beneficiary RMB 840,000 in inheritance tax.

aaAn inheritance tax is usually considered a way to balance wealth gap in a society because it not only motivates the rich to spend more now, but also reduces what their heirs got. In a country like China where resentment of the rich is increasingly high, one’d expect people to welcome an inheritance tax. Well…quite the opposite. With exclusion starting at RMB 800k, the coming inheritance tax, if implemented, would be a tax on the masses rather than the rich.

With an average annual household income of RMB 13,000 yuan in 2012 (roughly $2,100), RMB 800k won’t be able to very effectively separate the middle class from the rich, especially in more developed urban areas. To make things worse, it’s tradition in China for children to inherit their parents’ home. But the soaring housing price in the past few years has made almost all descent urban homes worth around or more than RMB 800k, which means most urban households will face inheritance tax sooner or later.

Take Beijing for example, the average new home price in Beijing was RMB 27,349 yuan per square meter as of May, 2013. RMB 800k can only buy an apartment of less than 30 square meters (about 300 square feet). By that measure, almost all home owners in Beijing need to pay the inheritance tax, unless, of course, the owner dies before the policy goes into effect.

And guess what, people don’t even really “own” homes in China because everything is “collective property” that belongs to the country instead of any individual. Those who buy homes in China buy the right to live in the home for either 70 years, 50 years, or in some cases, 30 years. One netizen 努比菲君 commented: “It’s shameless to impose inheritance tax when everything is collectively owned.”

Netizen 笑看天下abc best described what an inheritance tax would mean to a typical urban middle class household in China:

“After saving as much as possible for years, draining their parents’ life savings and getting a 30-year mortgage, a young couple finally managed to buy a home. 30 years later, the mortgage is clear. Another 30 years later, the couple is dead, leaving the property, which is by then worth several millions, to their child who needs to pay tens of thousands of inheritance tax. The child saves hard for 8 years to pay up the inheritance tax. Two years later, his family’s 70-year-long right over the property is over.”

Legitimacy issues aside, there is also the general concern of how tax money is spent in China. Without effective supervision and enough transparency, many netizens fear that the inheritance tax is just another way for corrupt officials to rob the people’s money into their own pockets. And nobody knows how deep those pockets are.

Netizen 老徐时评 commented: “Before plotting how to empty the people’s wallets, government officials should first make sure that their own asses are clean. To impose inheritance tax, officials first need to disclose their own personal assets, and to set up an open and transparent supervision system to monitor government spending. Otherwise, new taxes would only mean new feast for corrupt officials.”

Many argue that in the current China where there lacks well-developed social welfare, healthcare and education systems, to levy inheritance tax is nothing more than robbing the people. One netizen 轩辕小梦 commented: “The only result of an inheritance tax would be the government getting richer and the people poorer.” 

Some even predicted that the inheritance tax, if implemented, will mark the start of a new peak of Chinese immigrants because, as netizen 郭光东 commented, “the reasons of immigration are no longer as abstract as freedom and safety, but as concrete as the middle class being exploited.”

Many Chinese netizens now sarcastically call the inheritance tax a “real death tax.” The message is clear – die before it happens. 

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2 Responses to “Is inheritance tax coming to China?”

  1. [...] the wealth gap, netizens believed that the new law is to steal money from the working middle class. More from Offbeat [...]

  2. Someone thinks this story is hao-tastic…

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