Tax reform to encourage creation of more pensions

• Source: Global Times
• [01:53 December 14 2009]
• Comments

The government has encouraged companies to establish a pension system since 1991. Pensions have sometimes been regulated and taxed under local laws.

In Guangzhou, Guangdong Province, for example, a 2007 regulation stated that both employee and employer pension contributions should be added to employees' normal taxable income.

The new national regulation would decrease the taxes workers in Guangzhou pay on their pensions.

"As there was not a national regulation, some employees did not pay the personal income tax for the pension. With the new regulation, all the employees with a pension should pay taxes," said Feng Yuanshi, head of Retirement, Risk and Finance Consulting at Mercer China.

Figures from the MOHRSS show that more than 30,000 companies had established a pension system as of June 30, covering 13 million employees and with a total worth of 200 billion yuan ($29.28 billion).

However, employees with pensions comprise just 7 percent of the 174 million employees with basic retirement benefits around the country.

Companies that have established a pension system are mainly monopolies or in high-income industries including oil, gas, coal, nonferrous metals, railways, telecommunications and finance.

The new regulation will encourage more companies to establish a pension system as well as reduce the gap between high-income and low-income employees, the SAT said on its website Friday, in a document that further detailed its Thursday statement.

"Under the new regulation I can calculate clearly where my money goes, and enjoy the benefits of the tax rate for the employer's payment of the pension," said Chen Daming, an employee at Masteel, a State-owned steel and iron company in Ma'anshan, Anhui Province.

"The government has made progress in reducing some employees' tax burden, but it should further reduce the personal income tax of employees' pension payments in the long-term, which could help improve the national pension system," Feng said.