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The Year Of The Pig And The Tax Man.

By John Dietz - Email Editor

Date : 10-April-2007

Dear Subscriber:

As most U.S. persons are sorting out their yearly tax burden due on April 15th, the Chinese have now gone through their first year ever of personal tax returns. On November 6, 2006, China’s State’s Administration of Taxation (SAT) issued regulations providing guidance on the filing of individual income tax returns. The first return was due March 31st, 2007. The Year Of The Pig means a year of prosperity for China, and no doubt for the tax man.

The seeds of this new income tax were sown New Year's day 1994 when the first ever Chinese national tax law came into effect. That law did not include personal income. Larry Lipsher, an expert on international tax is an American CPA living in Guabgzhou, People’s Republic of China (PRC). Larry tells me that he still has the original Chinese 1994 tax act, the pages are yellow and brittle, all six of them. …The irony, Larry says, is that the very same day in 1994, the new U.S. tax act came into affect with 1,447 pages.

China today has two personal filing categories: category one and catagory two. Category one is when an individual earns more than 120,000.00 Yuan per year (currently $15,533.77 USD). Category two is for those living and working in China with income received outside of China. PRC nationals living outside of China are also subject to filing. I won’t go into the nuances in the law other than to say the Chinese system will be modeled after the U.S. tax system. If you have business relations with China or a Chinese citizen living abroad it may be worthwhile to visit the PRC website.

Larry believes that the taxing system, while ambiguous in many areas, will be moving with lightening speed into the future. He also reports that compliance will be an issue for people the first year, as there are not enough government officials to police the returns, but he warns: File your returns; the SAT is not joking around. In essence, there is too much money at stake. Currently, the two page tax form doesn’t give you enough room to enter the necessary data, but if the Chinese government is using the IRS as a role model, this small blip in the system will be fixed in no time.

Economic Gains for China

The Year Of The Pig’s prosperity will not be silenced because it’s populous is having a new tax burden; the opposite is true. China, in my view, looks much more capitalistic than the U.S. China just inked an oil deal with Russia and has similar commodity arrangements in every other part of the world. China is not only planning for future growth, it is buying it everywhere on the globe. And just to make things more interesting, it also has a billion consumers thinking about living the good life.

So what is the Asset Protection bend on all of this? Take the U.S. dollar for one: It has continued to devalue against most other currencies. Going to Europe this summer? If so, you will be shocked at just how little buying power you have. The fact is, currency markets are complicated and geo-political events effecting monetary policies are even more complex.

THE BOTTOM LINE--China is a surplus nation, and the U.S. is in debtor’s prison. The U.S./Chinese relationship is important, but for whom? At China’s 10 percent average growth rate, it won’t be long before China’s GDP catches up and surpasses the rest of the developed world. In many ways China will affect U.S. pocketbooks for a long time to come. It is important that we get our arms around what China is and how it affects your wealth.

More on China in upcoming articles.

Until next time,

John

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