SAT tightens rules for income tax

  • Posted by admin on September 17th, 2009 filed in news

A recent move by the State Administration of Taxation (SAT) to tax employee’s transportation and telephone allowances is aimed to increase tax revenues and address tax evasion problems.

The SAT issued a document on tax policies September 4 to its local branches and tax bureaus. The new policy instructed the agencies to shift transportation and phone allowances from non-taxable to taxable items under individual income tax.

Local governments are to set the bar for tax deductibles for these allowances, according to the document.

If deductibles are unspecified, 30 percent and 20 percent of the transportation and telephone allowances respectively will be subject to taxation.

The Beijing Local Taxation Bureau declined to comment when reached by the Global Times Wednesday, saying that only the SAT has the right to explain the relevant rules.

The SAT was not immediately available for comment.

The measure is mainly aimed to increase tax revenues, Zhang Guangtong, associate professor at the Tax Institute under the Central University of Finance & Economics, told the Global Times.

“The growth of tax revenues slowed down in 2009. It is therefore the government’s intention to reach this year’s target by blocking some channels for tax evasion,” said Zhang.

The total tax revenues nationwide reached 2.95 trillion yuan ($432 billion) in the first half of the year, down 6 percent year-on-year.

Many enterprises increase employees’ incomes by paying various allowances for items like telephone and transportation fees, which were originally not taxable.

Since salaries and bonuses are taxable, many employers, especially government-affiliated agencies and State-owned enterprises, also tend to keep salaries at low level but increase non-taxable allowances in order to raise their staff’s incomes, according to Zhang.

Another practice among employers is to reimburse the telephone and transportation fees claimed by their employees and thus avoid taxes.

The common practice has caused tax losses, Zhang added. Under the new measure, even the reimbursed amount is subject to tax.

“However, the impact of the new taxable items is limited as employers can always come up new ways to address this,” Zhang said.

Employers can reimburse employees for expenses other than telephone and transportation, such as those for hotel accommodation and office stationery, Zhang pointed out.

But the amount of money to be taxed from these added expenditures is negligible.

Shanghai Bell stopped giving transportation allowances to its staff in May, said an employee of the joint venture between Alcatel and Lucent.

“Before April, I had a 300 yuan ($44) transportation allowance each month that was tax-free. But after April, it has been included in my salary package and is taxable,” the source who spoke on condition of anonymity said.

“I don’t feel it made much of a difference,” the source said.

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