China’s State Administration of Taxation has introduced new Administrative Measures for the Final Settlement and Payment of Individual Income Tax on Comprehensive Income (hereafter referred to as the “Measures”). These Measures provide a structured and standardized approach to the final tax settlement process, reinforcing China’s tax administration reforms. The policy has been developed based on extensive research, public feedback, and a review of previous tax settlement practices.
With China’s comprehensive and categorized tax system in place since 2019, these new Measures seek to improve efficiency, enhance taxpayer services, and ensure transparency in tax administration. The policy is set to streamline final tax settlements while reinforcing legal compliance and taxpayer rights.
Background and Rationale for the New Measures
Since the introduction of the comprehensive and categorized individual income tax system in 2019, taxpayers in China have been required to consolidate their tax obligations for wages, labor remuneration, author’s remuneration, and royalties at the end of each year. The final settlement determines whether additional taxes are owed or if refunds are due.
Between 2019 and 2023, annual announcements from the tax authority guided taxpayers through the process, ensuring stability and compliance. Now, with five years of experience, the government has consolidated these practices into a permanent regulatory framework, providing greater certainty for taxpayers and tax authorities alike.
The Third Plenary Session of the 20th CPC Central Committee emphasized the need to refine the comprehensive and categorized individual income tax system, prompting the need for more standardized and systematic tax administration policies. The Measures reflect this commitment by codifying effective tax service practices and enhancing the legal structure surrounding personal income tax settlement.
Key Features of the New Measures
The Measures, structured into six chapters and 37 articles, retain most of the elements from previous tax settlement announcements while formalizing and refining them. Key provisions include:
General Provisions
The Measures outline the scope of final settlement, the applicable tax year, the filing period, and the situations requiring settlement. Taxpayers must consolidate their earnings across different income categories and complete their tax returns within the specified period.
Preparing for Tax Settlement
Taxpayers are encouraged to review their financial information, verify deductions, exemptions, and tax reductions, and ensure that their banking and contact details are up to date in the Individual Income Tax (IIT) App. If discrepancies arise, taxpayers can raise objections or request adjustments before submission.
Filing and Processing
The Measures clarify tax filing methods, submission channels, correction procedures, and extensions under special circumstances. Pre-filled tax declaration services, appointment-based filings, and guided assistance are available to simplify the process.
Tax Refunds and Payments
Taxpayers eligible for refunds will benefit from priority tax refund services, especially if they have significant financial burdens. Refunds are subject to review, and taxpayers may be required to provide additional documentation if discrepancies arise.
Legal Responsibilities and Compliance
The Measures define the rights and responsibilities of taxpayers, tax authorities, and related parties. It emphasizes data confidentiality, fair tax credit management, and legal remedies in cases of disputes. Non-compliance, including failure to file tax returns or settle outstanding taxes, may result in penalties and corrective actions.
Supplementary Provisions
The Measures specify their effective date and detail exceptions where certain taxpayers may not be required to file a final tax settlement.
Enhancements in Taxpayer Services and Rights Protection
One of the most significant improvements in the Measures is the focus on taxpayer convenience and legal protections. Several service-oriented reforms have been introduced to enhance efficiency:
- Pre-filled Tax Returns: Tax authorities will provide pre-populated tax forms based on available records, reducing errors and streamlining the filing process.
- Appointment-Based Filing: Early appointment services through the IIT App allow taxpayers to manage their tax affairs efficiently.
- Priority Tax Refunds: Individuals facing financial hardships or meeting specific criteria (such as high medical expenses or low income) will receive expedited refunds.
- Dispute Resolution and Appeals: Taxpayers can challenge discrepancies in income records, deductions, or fraudulent filings through an official appeals process.
- Confidentiality and Data Protection: The Measures reinforce the legal obligation of tax authorities to protect taxpayer data and maintain confidentiality.
Key Provisions for Taxpayers
The Measures also outline specific scenarios where taxpayers may or may not need to file a final settlement:
- Exemptions from Final Settlement:
- If annual comprehensive income is below 120,000 yuan.
- If the final settlement results in a tax liability below 400 yuan.
- Tax Refund Review Process:
- Tax authorities will verify refund applications.
- If discrepancies are found, taxpayers must provide additional documentation or correct declarations before receiving refunds.
- Enforcement Measures for Late Filings:
- Taxpayers failing to file their final tax returns will receive an official notice for correction.
- Digital notifications through the IIT App, website, or SMS will be issued to alert taxpayers.
Implications and Future Outlook
The implementation of the Measures signals a shift towards a more structured, transparent, and service-oriented tax administration system in China. By solidifying the annual tax settlement process into a permanent regulatory framework, the government aims to:
- Improve tax compliance and financial transparency.
- Reduce administrative burdens for taxpayers through digital services.
- Enhance efficiency in tax collection and refunds.
- Align with long-term tax policy reforms emphasizing fairness, simplicity, and accessibility.
As tax policies continue to evolve, taxpayers are encouraged to stay informed, utilize available digital tools, and seek guidance from tax authorities to ensure a smooth and compliant filing experience. The State Administration of Taxation will continue to refine its services, addressing taxpayer concerns and improving the IIT App’s functionality for greater accessibility and convenience.
The Measures represent a step forward in China’s ongoing efforts to create a modernized, taxpayer-friendly tax system, reinforcing trust and efficiency in tax administration.