A debate over China's old-age security model has attracted public attention with a preliminary proposal for inheritance tax in the country. But analysts said there is a long and bumpy road ahead before levying.
The State Council, or the Cabinet, proposed a house-for-pension pilot program in mid-September. This led to heated debate, especially among people who want to inherit real estate from their parents.
Liu Huan, a Cabinet advisor and professor at Central University of Finance and Economics, has concerns. Liu was quoted in Monday's 21st Century Business Herald (21CBH) as saying that inheritance tax was written into a draft document for a key plenum of the Communist Party of China in November.
As early as in 2004, the Ministry of Finance had rolled out a draft code for inheritance tax. A revised version in 2010 provided more details, including a proposed tax threshold of 800,000 yuan (about 130,120 US dollars).
So far, no official timetable has been set in introducing the tax, though the State Council approved in February a proposal from the National Development and Reform Commission and other authorities that study should be done to start levying inheritance tax "at an appropriate time," according to 21CBH.
"The biggest difficulty is not lawmaking itself, but the building of an asset and property registration region system as well as the hardware for the enforcement of the law," Huang Yuan, a tax agent from China-Beijing-CPA, was quoted in 21CBH as saying.
Wang Fang, a senior partner at Dacheng Law Offices, also noted that a national system for assets and property rights information of individual citizens should be established before the government starts charging inheritance tax.
"It [the system] still needs time. The time is not yet ripe for inheritance tax," Wang said.
China started to piece together a private assets and properties information platform in recent years. In December 2011, the central bank urged commercial banks to verify the identities of their depositors by the end of this year.
A report released in March by China Institute for Income Distribution at Beijing Normal University suggested the country formulate an inheritance tax scheme before 2015, as part of efforts to transform economic structure and narrow wealth gap.
Given China's total tax revenues of more than 10 trillion yuan in 2012 and empirical data from other countries, inheritance tax could generate an annual income of 200 billion yuan for the government, according to the 21CBH.
However, Liu Huan pointed out that it would take at least three to four decades before the tax could be actually levied.
China's 70-year leasehold for real estate will complicate the levy of inheritance tax, Liu said. In China, private property can be leased for only 70 years and the leasehold can be automatically extended, but the costs incurred in extending are not specified.
Liu also said the tax is likely to meet with opposition because it challenges traditional Chinese beliefs that parents will rely on their children to take care of them and leave their properties, especially their houses, to their offspring as inheritance.
In fact, one focus of public debate is the "unreasonable" tax threshold and rates proposed in the 2010 revised draft, which says any heritage worth of more than 800,000 yuan will carry a tax tag and the rate will vary from 20 to 50 percent.
Any future scheme must take into full account the widely different income levels in China, said Wang Fang, adding decision must be based on the collection and analysis of a huge amount of data.
A discussion with financial regulators will also be needed before introducing the tax, the lawyer added.