China should impose an inheritance tax on estates worth more than 5 million yuan ($803,000), which would raise 20 billion yuan a year in tax revenue and help narrow the wealth gap, claimed a report released Saturday by an institution specializing in income distribution.
The China Institute for Income Distribution of Beijing Normal University said an inheritance tax on a deceased person's assets valued at more than 5 million yuan would affect households that earn a total annual income of more than 360,000 yuan per year and accumulate asset over 15 years, the Beijing Times reported Sunday.
The inheritance tax would also create greater social fairness if the children of wealthy families were required to pay a tax on part of their family's wealth. Children from wealthy families are often seen as having an overwhelming edge over the underprivileged offspring of migrant workers, said the report.
Less than 1 percent of the Chinese population owns more than 50 percent of the wealth in China and introducing an inheritance tax could help balance the distribution of wealth, the Beijing Times reported.
While the university's report suggested the tax would bring an additional 20 billion yuan into government coffers, it did not mention what the rate of taxation would need to be in order to raise that amount.
Wang Zhenyu, a researcher with the China University of Political Science and Law, told the Global Times Sunday that the report's suggested threshold for the tax to kick in is too low.
"The 5 million yuan is not only the money a household has in its bank account. One's real estate in also included as a taxable asset," said Wang, suggesting that it is very common in big cities for a family's apartment to be worth several million yuan.
"The valuation system also worries me, since art collections and real estate fall within the scope of the suggested tax," Wang said, adding that families will be tempted to undervalue their assets and create opportunities for corruption."
As most people's inheritance comes in the form of real estate, imposing the tax could help deflate the housing bubble and bring down the cost of housing, according to the report.
The report suggests that imposing the tax would contribute to narrowing the gap between the rich and the poor creating a greater sense of social fairness.
More than 140 countries around the world impose a tax on inherited assets, said the report, adding that in some developed countries inheritance taxes generally account for 1 to 2 percent of total tax revenue, said the report.