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By Wu Jiao (China Daily)
Updated: 2007-08-29 09:43

Firms in high-income sectors and those that declare less tax for their employees compared to their counterparts will be the target of a new move by the taxman.

"Tax declarations by these firms should be evaluated in detail," the State Administration of Taxation said on Monday.

"The bank accounts of these firms, their cash flows and the welfare extended to their employees will be closely monitored in order to make their tax declarations more accurate."

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A weak tax monitoring system and low-awareness of payments have hindered the tax watchdog.

"The new move will help narrow the widening income gap in the country. At present about 70 percent of the tax comes from average-income earners," An Tifu, a finance expert with Renmin University of China, said.

The move will improve the system of personal tax declarations after it was made mandatory in 2005.

In future all firms whose employees annual tax exceeds a combined total of more than 300,000 yuan (US$40,000) must declare this by the end of 2008, while firms whose employees' total tax liabilities are less, must make declarations by 2009.

"With the taxation authority now lacking information about how many people are liable to tax on wages earned, this method is a way forward," An said.

The taxation watchdog will analyze and evaluate information regularly to tackle problems in the tax system.

The authorities will also monitor a person's stock market profits, and those buying luxury homes.

At the beginning of this year the tax authority required all people earning more than 120,000 yuan a year to declare their incomes before March.

More than 1.6 million people declared their incomes by April, generating a 28 percent increase in personal tax revenue in the first half of this year compared to the same period last year.

"The personal income declaration campaign, which has proved successful, has provided us with the necessary experience to launch our new drive in requiring all firms to declare their staffs' personal income tax," the authority said.

But experts said the tax bureaus need more supportive measures to implement the new rule.

All firms should pay their wages and welfare benefits in cash and not in kind through gifts to prevent tax evasion, An said.