On 23 July 2018, China’s Central Committee and the State Council jointly released a ‘Reform Plan on the National and Local Taxation Collection and Management System’.
The Taxation Collection Reform Plan, which will come into force on 1 January 2019, aims to consolidate the collection of national and provincial taxes. It is also intended to clarify current ambiguities around which bureau is ultimately responsible for collecting social insurance contributions. The Plan places sole responsibility for calculating and collecting the premiums with the tax bureau and removes the authority of the HR bureau to do so.
Experts expect the change to improve social insurance compliance levels as the tax bureau is well resourced to monitor and collect contributions. As a result, employers that have not reviewed their social insurance contribution activity lately should consider doing so.
The reform
The previous ‘1999 Provisional Regulations for the Collection and Payment of Social Insurance Premiums’ enabled the social insurance agency to collect premiums through either the HR or tax bureau, an ambiguity that led to inconsistencies across the country.
Only 19 regions currently rely on the tax bureau to collect contributions, but many other regions, including Beijing, Shanghai, and Tianjin, all use the HR equivalent to either calculate or collect them – and it is they that will be most affected by the new law.
The collection of premiums is also henceforth widely expected to be enforced more vigorously as the tax bureau is better resourced than its HR equivalent and has authority on a national basis.
The move is being seen as the Chinese government’s response to an ageing population and a rising pensions deficit. As the country’s population becomes older, it will come under greater pressure – and financial strain – to provide services for the elderly.
Under the new Plan, the transfer of authority to the tax bureau will take place following sweeping reform of Chinese ministries and government institutions, which includes the merger of both national and local tax institutions.
Stricter enforcement anticipated
In theory, all employers should pay social insurance contributions both in full and in a timely manner, which means the shift in authority to the tax bureau should make little difference. But in some instances, companies have made inadequate payments on behalf of their employees. For example, it is not uncommon for employers to agree to pay staff members a higher salary in exchange for not making social insurance contributions, which results in cost savings for the employer.
But under the new law, it will be possible to track such illegal practices more easily. Particularly following the implementation of the Golden Tax III tax control system, the tax bureau has had access to more sophisticated calculation and collection capabilities that its HR equivalent.
Moreover, it is likely that transferring responsibility for social insurance to the tax bureau will give rise to a more precise definition of what a ‘salary’ - which determines the amount of social insurance contributed - actually is.
The reform could also ensure that enforcement is more consistent. As a result, employers should ensure they conduct a thorough compliance review in order to ensure their contribution activities are legally compliant before 1 January 2019. They would be advised to pay particular attention to:
- Salary and overtime payments;
- Social insurance contributions;
- Work hour systems;
- Work safety requirements;
- Leaves and holidays.
While foreign businesses may be faced with stricter regulatory enforcement activity in the short-term, into the longer term, the reform could actually enhance their competitiveness in China. This is because the new Plan will make it harder for domestic companies to skirt their social insurance obligations, which most foreign businesses already comply with, thereby levelling the playing field at least to some extent.
By Dorcas Wong, editor.
This article was first published on China Briefing.
Since its establishment in 1992, Dezan Shira & Associates has been guiding foreign clients through Asia’s complex regulatory environment and assisting them with all aspects of legal, accounting, tax, internal control, HR, payroll and audit matters. As a full-service consultancy with operational offices across China, Hong Kong, India and ASEAN, we are your reliable partner for business expansion in this region and beyond. For inquiries, please email us at info@dezshira.com. Further information about our firm can be found at: www.dezshira.com.
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On 23 July 2018, China’s Central Committee and the State Council jointly released a ‘Reform Plan on the National and Local Taxation Collection and Management System’.
The Taxation Collection Reform Plan, which will come into force on 1 January 2019, aims to consolidate the collection of national and provincial taxes. It is also intended to clarify current ambiguities around which bureau is ultimately responsible for collecting social insurance contributions. The Plan places sole responsibility for calculating and collecting the premiums with the tax bureau and removes the authority of the HR bureau to do so.
Experts expect the change to improve social insurance compliance levels as the tax bureau is well resourced to monitor and collect contributions. As a result, employers that have not reviewed their social insurance contribution activity lately should consider doing so.
The reform
The previous ‘1999 Provisional Regulations for the Collection and Payment of Social Insurance Premiums’ enabled the social insurance agency to collect premiums through either the HR or tax bureau, an ambiguity that led to inconsistencies across the country.
Only 19 regions currently rely on the tax bureau to collect contributions, but many other regions, including Beijing, Shanghai, and Tianjin, all use the HR equivalent to either calculate or collect them – and it is they that will be most affected by the new law.
The collection of premiums is also henceforth widely expected to be enforced more vigorously as the tax bureau is better resourced than its HR equivalent and has authority on a national basis.
The move is being seen as the Chinese government’s response to an ageing population and a rising pensions deficit. As the country’s population becomes older, it will come under greater pressure – and financial strain – to provide services for the elderly.
Under the new Plan, the transfer of authority to the tax bureau will take place following sweeping reform of Chinese ministries and government institutions, which includes the merger of both national and local tax institutions.
Stricter enforcement anticipated
In theory, all employers should pay social insurance contributions both in full and in a timely manner, which means the shift in authority to the tax bureau should make little difference. But in some instances, companies have made inadequate payments on behalf of their employees. For example, it is not uncommon for employers to agree to pay staff members a higher salary in exchange for not making social insurance contributions, which results in cost savings for the employer.
But under the new law, it will be possible to track such illegal practices more easily. Particularly following the implementation of the Golden Tax III tax control system, the tax bureau has had access to more sophisticated calculation and collection capabilities that its HR equivalent.
Moreover, it is likely that transferring responsibility for social insurance to the tax bureau will give rise to a more precise definition of what a ‘salary’ - which determines the amount of social insurance contributed - actually is.
The reform could also ensure that enforcement is more consistent. As a result, employers should ensure they conduct a thorough compliance review in order to ensure their contribution activities are legally compliant before 1 January 2019. They would be advised to pay particular attention to:
- Salary and overtime payments;
- Social insurance contributions;
- Work hour systems;
- Work safety requirements;
- Leaves and holidays.
While foreign businesses may be faced with stricter regulatory enforcement activity in the short-term, into the longer term, the reform could actually enhance their competitiveness in China. This is because the new Plan will make it harder for domestic companies to skirt their social insurance obligations, which most foreign businesses already comply with, thereby levelling the playing field at least to some extent.
By Dorcas Wong, editor.
This article was first published on China Briefing.
Since its establishment in 1992, Dezan Shira & Associates has been guiding foreign clients through Asia’s complex regulatory environment and assisting them with all aspects of legal, accounting, tax, internal control, HR, payroll and audit matters. As a full-service consultancy with operational offices across China, Hong Kong, India and ASEAN, we are your reliable partner for business expansion in this region and beyond. For inquiries, please email us at info@dezshira.com. Further information about our firm can be found at: www.dezshira.com.
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Understanding marriage leave in China
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