Chinese Leaders Declare China’s Tax Code is Too Simple

April 1, 2015

On Monday the Premier of the State Council of the People’s Republic of China announced that the Chinese tax code lacked the complexity of an advanced industrialized nation. He has started a campaign with the title “Complicate China” to promote the advantages of a modern Western tax code.

In an official statement on Monday, China’s leaders spoke of aligning their tax code with that of other advanced economies:

“Now that China has become the second largest economy in the world, we must update our policies to reflect our economic success. The United States has an economy which is the envy of all nations and a tax code so complex that simple workers must use complicated software just to pay their taxes. China must forgo a simple tax code to show the industrial economies how advanced China has become.”

The proposed tax plan includes a ten-bracket, inflation-adjusted individual income tax with a 12 category exemption scheme and a myriad of deductions and credits. Some of the more notable deductions include the disaster relief credit, the one-child credit, and the town-and-village bribery deduction.

The individual income tax also includes an Alternative Minimum Tax (AMT) for anyone with a job and an additional (AMT) for anyone suspected of being a dissident. Chinese leaders were touting the AMT as a way of closing the plethora of loops holes created in the new income tax and reducing the amount of dissident activity in China. In a pamphlet from the Complicate China campaign titled “Alternative Minimum Taxes: Keeping China Busy,” it says,

It is possible that individuals could take advantage of all the tax credits and deductions from the new income tax and would not have to pay any taxes. The AMT reduces this possibility by ensuring a minimal tax burden regardless of their well-intentioned actions. The addition of a second AMT for individuals suspected of dissident activity will more than double the time required to file taxes. The additional time requirement to fulfil tax duties will reduce the time available to plan and execute undesirable activities against the government.

The plan included changes to business and corporate taxes as well. All business are allowed to deduct capital equipment with a Modified Alternative Depreciation (MAD), which requires 30 year depreciation on all capital expenditures based on a schedule determined by 2-million different categories.

After being shown the new tax code, a Chinese farmer said through an interpreter, “I’ll be deducting my new shovel well after I’ve thrown it away. Well after my child has taken over the farm, he will be deduction this shovel as well.”

The Complicate China campaign notes that the new depreciation system has some employment benefits. One study out of a leading Chinese university stated, “[MAD] is such a complicated system that firms will need to hire one or two full-time accountants to track the deductions. It is estimated that half a million accountant jobs will be created over the next two years. It is likely that forgoing the tax deduction is more cost effective than attempting to depreciate capital expenditures.”

The new plan also implements a Nevada inspired gross receipt tax. With a 50,000 category matrix, the tax promises to be the most onerous tax on businesses in history. Small businesses are scrambling to find accountants capable of working with the matrix. Several accounting firms have closed their doors and refused to speak with the mob of businessmen lined up outside their offices.

A Chinese business association leader commented that, “This gross receipts tax is more complicated than anything I’ve ever seen before. I’m advising my members to find the highest tax rate in the matrix and pay it to avoid the fines and penalties from being wrong.”

Taxes applied to Multinational Enterprises (MNE) have some changes as well. The new plan seeks to implement a “Worldwide Trade Firm” (WTF) corporate income tax (CIT). The WTF-CIT taxes all income produced by Chinese subsidiaries in countries where more than 0.1% of the populace speaks any Chinese dialect. In addition, all businesses which are wholly or partially owned by any individual born in China, regardless of where the business is registered, the current citizenship of the owner, or the business activity takes place; is subject to the WTF-CIT. The new MNE tax rules also applies a payroll tax on all Chinese speakers employed by these businesses as well.

A spokesman from an international accounting firm commented on the new MNE rules, “These rules are more punitive for individuals who had the misfortune of being born in China than it was meant to raise revenue. It seems as if Chinese officials are intentionally trying to ruin their economy. I hope these leaders are happy with themselves. WTF is right.”

In a press conference on Tuesday, the architects of the new tax plan argued that they are the Gaudi of tax economists. They were quoted as saying,

“You can complete a U.S. tax return in a couple of hours with tax software on a personal computer. We aim for an individual and a super computer to take at least one month to complete our new tax return.

“This new tax plan only puts us on par with the U.S. federal and state tax rules, but we don’t plan to stop here. We have been studying individual states in the U.S., and there is a lot of room to improve. We will start our fact finding trip in the state of New York. We are hoping what we learn there will allow us to have the most complicated tax code in the industrialized world.”

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