The imminent launch of a new high-tech tax system in China is already making the wealthy extremely anxious.
China is currently planning on introducing a new tech-heavy tax administration and monitoring system expected to go online later this year.
Although an announcement like that might elicit little more than yawns elsewhere, there are several things here that should be keeping private banking executives - and wealthy clients – up at night.
Taxes are integral in Beijing’s fight against economic and social inequality and, as finews.asia has reported, influencers and celebrities have recently been fined very large sums for evading them.
According to Dezan Shiro & Associates, a mainland-based consultancy, the new system also heralds a colossal shift. It will use the cloud and big data.
Everything is Digital
According to them, tax authorities intend to use the basic tools of fintech – and big tech – to help with their supervisory activities and statistical analysis.
That step should not be underestimated given that a very significant chunk of the country’s total economic activity is digital, and money frequently mostly changes hands through payment apps such as Weixin/Wechat, and Alipay.
The «South China Morning Post» (paywall) has echoed many of the concerns currently being seen in China’s business community, with analysts it cited calling the new system a «giant X-ray machine».
Checking Data Authenticity
Indeed, Dozen & Schiro says China’s system, originally introduced in 1994 to administer and monitor fapiao value-added tax receipts, themselves already laden with easily gleaned information, should help ministries, commissions, banks, and other institutions share information.
Tax authorities will be able to compare and check whether tax data submitted is authentic by, among other things, reviewing business transfers from public to private accounts and private only account transfers.
Given the generously porous nature of commercial and retail accounts in many countries in Asia, whereby many individuals have both individual and entity accounts, that naturally warrants some concern for private bankers.
Indeed, that concern was amplified by several small entrepreneurs talking to the «SCMP», as they had been collecting payments with personal bank cards or using their Wechat accounts for business. The newspaper also indicated that the wealthy expect far larger tax bills this year and they are preparing for that eventuality, although some are apparently looking to immigrate or apply for foreign citizenship.
Doubling Back
«Eventually, through information sharing and big data analysis, the tax bureau may be able to obtain an accurate data portrait of every enterprise and individual taxpayer», Dozen & Schiro writes on its website.
That by itself should be enough to scare private banks and wealth managers into reviewing client relationships again to make doubly sure they have updated documents on file.
It may even prompt the more cautious among them to embark on another expensive round of tax remediation, such as the exercises conducted about a half a decade back in the years after the FATF had upgraded tax evasion to a predicate financial crime and common reporting standards (CRS) were introduced.
Full Compliance Needed
For many, that turned into a consultant-heavy, multi-year project to get clients to provide tax identification numbers and duly signed forms stating they were fully in compliance with their jurisdictional tax laws.
Those connected to mainland China were additionally required to provide stamped tax residency certificates verifying tax compliance with the authorities. At some banks, someone in compliance or operations had to then verify, vouch or endorse their authenticity before each was submitted to a committee vote.
Given that China residents are taxed on their worldwide income, as in the U.S., it might be a good idea for the wealth management sector to not dig in their heels at the expense and make sure they get ahead of the curve on this.
