The State Administration of Taxation of the Communist Party of China issued a new tax announcement on its official website on December 30, 2021, levying individual income tax on individual sole proprietorships and partnerships that hold equity investments, stocks, partnership property shares and other equity investments. It will be implemented on January 1, 2022.
Take an industrial park in Chongqing as an example to illustrate the difference between the two.
The tax regulations of the industrial park stipulate that the individual tax of a sole proprietorship enterprise is determined to be 0.6%, and the comprehensive tax rate is 1.66%; and the tax rate for audit collection is 25%.
For a company’s 10 million profit, the amount of tax payable according to the original approved tax collection method: 10 million × 1.66% = 166,000.
According to the audit collection method, the corporate income tax shall be paid: 10 million × 25% = 2.5 million and individual tax: (10 million-2.5 million) × 20% = 1.5 million; total payment: 2.5 million + 1.5 million = 4 million.
The tax difference between the two collection methods is: 4 million-166,000 = 3.834 million.
Calculated by personal income tax:
With an annual income of 10 million yuan, the original approved collection system, the tax payable is 1 million yuan, according to the comprehensive income personal income tax rate table 1, the current personal income tax is: 1,000,000×45%-181,920=268,080 yuan.
Calculated according to the audit collection method, 10 million income minus 3% value-added tax, according to the 35% tax rate, it is necessary to pay 3.33 million personal income tax.
Many netizens lament that a change in tax collection methods has increased the amount of tax payment by at least 10 times! In other words, “From today (January 1, 2022), the tax planning industry no longer exists.”
Performing arts stars bear the brunt of the impact
Stars in the show business generally enjoy sky-high prices, and China is no exception. Most Chinese celebrities will have multiple companies associated with them, or sole proprietorships, partnerships, or individual studios in the form of individual industrial and commercial households. This is already a routine tax avoidance operation in the entertainment industry. Multiple companies can share the sky-high salaries of the celebrities, and they can pay taxes at a maximum individual tax rate of 35%. If the method of approved levy is adopted again, the actual tax amount will be lower.
However, tax is levied according to the method of checking accounts, no matter how many companies are under the name, all income will be taxed in full. In other words, it is no longer possible to reduce taxes by relying on leather bag companies.
In addition to the tax impacts of celebrities, celebrities, and Internet celebrities, the withdrawal of private equity funds, the reduction of listed companies’ circulating shares, and the income of speculators will also be severely impacted by full taxation.
At present, all parts of China are tightening the policy of approved expropriation.
According to information from Lu Media, Shanghai has already started to use audit collection methods for all newly registered sole proprietorships and partnerships in 2021, and no approved collection is allowed.
Some netizens predict that by 2022, the luxury housing market, luxury car market, luxury goods market, and collectibles market will be wiped out.
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