Yin Participates in Symposium on Chinese Income Tax Reform

University of Virginia law professor George Yin recently spoke at an international symposium on Chinese income tax reform that attracted a broad cross-section of Chinese policymakers, including representatives of China's cabinet, treasury department, state tax administration and national legislature.

Professor George Yin was the sole U.S. representative at a tax conference in China.

Yin, a tax expert who served as chief of staff of the U.S. Congress' Joint Committee on Taxation from 2003 to 2005, was invited to participate in the International Symposium on Chinese Personal Income Tax (PIT) Reform and Legislation at the special request of the Chinese government. The sole U.S. representative at the July conference, Yin was joined in Jinzhou City by academics from China and experts representing Germany and the United Kingdom. In addition, because China's PIT (a national tax) is largely administered at the provincial and local level, a number of local tax officials also attended.

Yin delivered two lectures on enhancing compliance and enforcement of the PIT.

"Effective tax administration is the foundation of any tax system, and it was interesting to consider what principles and practices used in the U.S. were relevant to the Chinese system," Yin said. "I discussed not only specific tax administration practices, such as withholding, information reporting and tax auditing, but also general principles relating to the design of the tax base and rate structure."

Yin said the symposium participants were interested in the U.S. perspective.

"They were particularly drawn to the idea of 'voluntary compliance' being a cultural value of a society that can be cultivated over time," Yin said. "In addition, they were very interested in how the U.S. monitors and tries to control its 'tax gap' — the difference between taxes owed and the amount actually paid."

The Chinese PIT recently underwent major change when the national legislature increased the annual exemption amount (below which no income taxes are owed) from 24,000 to 42,000 yuan (an increase from $3,600 to $6,600).To put that change in perspective, Yin said, in 2010 the average annual income was about $5,000 (32,000 yuan) for residents of Shanghai and about $2,200 (14,000 yuan) for residents of Qinghai (a poorer western province).

So although the change was widely represented in the press as a tax cut for low- and lower-middle-income taxpayers, it actually was a tax cut only for middle-class and upper-middle-class residents of the wealthier cities and provinces, many of whom are now beginning to experience significant wealth from the growing economy.

"Some of the Chinese attendees seemed disappointed by this recent change," Yin said. "I pointed out, however, that even with the change, the Chinese PIT retained a close resemblance to the U.S. PIT at a similar stage of development. At about the current age of the Chinese PIT system (30 years), the U.S. system still largely affected only a small, high-income slice of the population. Of course, that state of the law soon changed with the onset of World War II."

The symposium was organized by the Budget Affairs Commission of the national legislature, a small group of tax and budget experts who provide advice to members of the legislature. The BAC has a similar role in China to the U.S. Congress' Joint Committee on Taxation, whose staff Yin headed while on leave from the Law School.Support for the symposium was also provided by Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ), an enterprise of the German government that supports international cooperation for sustainable development.

"It was a terrific experience to visit the country, share U.S. experiences, learn a lot about the Chinese PIT and meet so many interesting and important representatives of the Chinese tax system," Yin said.