First annual individual income tax settlement highlights strong tax governance capabilities

From March 1 to June 30, 2020, tens of millions of individual taxpayers in China independently completed the online or offline annual individual income tax settlement for the first time, which means the new individual income tax law, implemented in 2019, has been successfully introduced. The annual individual income tax settlement is a system that guarantees the fairness of individual income tax and allows taxpayers to calculate and pay undeclared tax or get tax refunds on the basis of prepaid taxes. 

Taxation is an important part of the country's economic system, and modernizing and managing the taxation system is an inherent requirement for modernizing China's governance capacity. Despite the complexity of individual income tax collection and the difficulties caused by the coronavirus pandemic, the first annual individual income tax settlement was completed successfully, which shows the strong tax governance capabilities of China in five areas. 

The system advantage of national taxation governance

Management of individual income tax, which involves tax collection and payment, is relatively complicated. Different from the complicated tax system in developed countries, China simplified the individual income tax system based on objective realities. In addition to the annual basic deduction of 60,000 yuan ($8,571), six other qualified deductions in the new individual income tax law are related to the actual living expenditure needs of taxpayers, and adopt a fixed non-proportional standard, which is not only easy for taxpayers to understand but also convenient for effective implementation. 

Strong organizational capabilities 

The taxation departments provided timely, efficient and diversified taxation services for a large number of individual taxpayers during the period of annual individual income tax settlement, receiving recognition from the public. 

The channels and methods of handling individual income tax have become more diverse. Taxpayers can choose to file tax returns through an internet tax platform, or apply to the tax departments for pre-filing service online; or they can conduct the settlement by mail or go to a tax service hall offline. Moreover, they can also file their annual returns by self-declaration, or authorize their employer or others to handle the filing for them. 

The processing time is more flexible. In order to help taxpayers complete their annual settlement in an efficient, convenient, reasonable and orderly manner, the taxation department asked taxpayers to file individual tax returns at off peak hours to avoid crowding and congestion. Taxpayers who found this period of time inconvenient due to busy work or other reasons could make an appointment during the annual settlement period or file through the online tax service. And they could also choose to pay their due tax through internet banking, POS machines and non-banking payment institutions (third-party payment). 

Policy publicity has been improved. The taxation departments have launched a series of taxation guidelines to explain relevant policies and professional terms and procedures, and they also stepped up efforts to spread policy interpretation and operational guidance through radio, television, newspapers, the Internet, public service advertisement, online tax service and the 12366 tax service hotline to help taxpayers to successfully complete the settlement. 

Technological innovation ability 

Modern information technologies are used for annual personal income tax settlement to improve the efficiency of tax collection and management. Relying on China's high-level social informatization, taxation departments provide taxpayers with website declaration and mobile APP declaration channels by using the latest information technologies to offer technical support for this large-scale online processing. 

Taxation departments also provide pre-filing service on the internet tax platform at the same time; the system will automatically calculate the tax due or any refund payable, if the taxpayer has no objection to the pre-filed result. This online real-time declaration system designed for large numbers of taxpayers is a substantial tax innovation that improves the efficiency of taxation management and ensures that tens of millions of taxpayers complete their annual settlement within the allowable three-month period. 

Collaborative innovation capabilities of government cooperation

A third-party tax-related information sharing mechanism has been formally established for the first time. The personal identification information from the public security departments and the personal expenditure information provide by employers have been introduced into the system, which not only improves the accuracy of tax declaration but also shortens the time for settlement, improving the efficiency of tax collection and management.

In addition, the new individual income tax law also requires relevant departments to provide information about taxpayers' expenditures for children's education, continuing education, medical treatment of serious diseases, home loan interest, home rent and support for elderly parents to check the accuracy and completeness of their declaration information. 

Innovative ability of governance models 

In the first annual individual income tax settlement period, taxpayers can directly receive refunds for overpayment or pay supplemental deficiencies in real time online or offline, rather than making additional tax return or tax refund declarations, which reflects the management concept of trusting the taxpayer's sense of responsibility.

Based on the good sense of trust and responsibility, taxpayers' participation is a welcome innovation in the management model. It enhances not only citizens' awareness of the need to pay taxes but also their sense of participation and responsibility in social and public affairs, which creates a benign social governance model co-ruled by the government and the general public. 

That tens of millions of individual taxpayers independently completed tax declarations in a timely way not only reflects the autonomy, self-discipline and participation of individual taxpayers in China, but also represents the application of modern concepts in the field of national tax governance.

Source from State taxation administration of the P.R.C.
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