Tax collectors across China are going after people who haven’t reported money they made from investments in other countries. The government wants to plug holes in its rules that stop money from leaving the country without permission.
Six tax offices in big cities like Beijing and Shenzhen put out nearly identical statements on Tuesday. They said they had “reminded and coached” some people to report their foreign earnings and pay any back taxes. Officials used computer data analysis to track these individuals down.
The government isn’t letting up on hunting taxes linked to trading done outside the country and stopping people from dodging money transfer restrictions. This push comes as officials look for new ways to bring in cash and shrink a massive budget shortfall. Money from selling land has dried up, and Beijing has tightened how much local governments can borrow.
The authorities called out some specific cases. Someone named Fu in Xiamen city in the southeast had to pay almost 7 million yuan, which equals $983,500, in back taxes plus penalties. Another person with the last name Li in Sichuan province paid nearly 6.7 million yuan.
This isn’t new. Government records show local authorities ran a similar push in late March as per Bloomberg.
Global data sharing enables enforcement
The tax push follows rules put in place in 2018 called the Common Reporting Standard. This worldwide system shares financial information to catch people dodging taxes. Chinese laws have always said citizens must pay taxes on all their income from anywhere in the world, including profits from investments. But this rule was barely enforced until last year.
Through the Common Reporting Standard, China has been swapping account information automatically with almost 150 countries and territories. This exchange covers accounts owned by people who owe taxes in each member country. It’s been happening for several years now.
Record capital flight to Hong Kong
Money leaving China hit a record in July. Mainland investors bought Hong Kong assets hard after the government relaxed some market rules.
Banks in China sent a net $58.3 billion overseas last month for their customers who wanted to invest in securities, according to numbers by the State Administration of Foreign Exchange released in August. That’s the biggest monthly outflow since the government started keeping these records in 2010.
As Chinese companies put more money overseas, authorities face growing pressure to fill revenue gaps while stopping capital flight that could shake up the financial system.