24.08.10 01:10 Age: 9 yrs
Lehman, Lee & Xu Comments on SAT Circular Outlining Improvements to the Individual Income Tax Withholding System
The State Administration of Taxation (SAT) recently issued a Circular requiring tax authorities at the local and district level to adopt multiple approaches to ensure that taxpayers are fully informed of their obligations under the tax withholding system.
In the Circular, the SAT raises explicit requirements for issuing payment receipts of the personal income tax. If the local tax authority levies the tax directly (ie where the tax is levied on the income of self-employed business, or on tax payers who file their tax returns and pay tax on their own), the tax authorities should issue common tax payment certificates, payment books or payment receipts after receiving the taxpayers tax registration application.
For regions where withholding agents have been reporting withholding details, and where conditions permit, corresponding tax authorities should inform the taxpayer of his/her individual income tax payment situation from 2010. Specific methods are as follows: tax authorities issue payment receipts directly to taxpayers; taxpayers make online query via taxation websites and print out tax payment details, and the authorities inform taxpayers of the methods and approaches for obtaining payment receipts at the taxation authorities' office; tax authorities inform taxpayers of their tax payment situation and of the methods and approaches for obtaining payment receipts at the taxation authorities' office via SMS. Tax authorities of various regions can also determine the specific approach for informing taxpayers based on their actual situations. It is learned that in order to strengthen management in this aspect, the SAT has newly developed a universal form of tax payment receipts. The new tax payment receipt in a single-copy receipt. SAT made it clear that from August 1, 2010 onwards, all payment receipts issued to the individual taxpayers should adopt this new format.
Where withholding agents have failed to report tax withholdings for all staff, or where detailed tax declarations have been made but the conditions for issuing tax payment receipts are not yet available, the SAT has made it clear in the Circular that tax authorities should actively promote the use of the individual income tax management system and expand the coverage of the full declaration of withholding details for all staff.
The Circular called on all local tax authorities to urge withholding agents to fulfill their obligation to disclose tax information to the tax authority. Withholding agents should document the tax withheld in the payroll records when the agent issues the employee’s salary and should issue tax withholding receipts to the taxpayer.
According to an official from Income Tax Department of SAT, the measure prescribed in the Circular are in accordance with the objective need to optimize the tax service to promote the full declaration of withholding details for all staff, to enhance the quality and efficiency of individual income tax collection, and to further promote the reforming of the individual income tax system..
Scott Garner, Foreign Legal Counsel with Lehman, Lee & Xu commented that “the Circular is very much in line with China’s ongoing reform and modernization of the tax system as it relates to individual income tax payers. Historically, the vast majority of China’s tax revenue came from State Owned Enterprises. As private enterprises have become more important to China’s economy, the collection of taxes from this sector has eclipsed that of the State Owned sector. In order to further broaden the tax base and increase revenues for the state, individuals are now taxed. A critical component of new tax system is that of the withholding agent, who has the responsibility to withhold the tax and remit it to the government. In recent years, the local tax bureau’s have made concerted efforts to monitor withholding agents to ensure that they are performing their legally required duties. One of the areas most closely monitored is that of employers who must withhold payroll taxes from their employee’s salaries. As in other jurisdictions, employers who fail to withhold income tax may themselves become liable to pay the taxes as well as pay fines and penalties for failing to withhold the tax.”
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