[adinobro]

I'm living in China at the moment. Feel free to ask any questions.

Here are some points that you might find interesting:

1. There is an income tax but there is no income tax return. If you pay too much you don't get anything back. You can pay a fine if you don't pay enough. This means you have to work with finance and do lots of paperwork to reduce your taxable income. Not always worth the effort.

2. You can choose to pay sales tax or not. It is optional. Generally, individuals don't pay sales tax while companies do. Companies have to prove that they spent money and they do this by collecting "tax receipts". Some companies give everyone a tax receipt. Some companies only give it on request. The machine that makes the tax receipt takes money from the company in real time and transfers it to the government. This cannot be faked BUT they can be traded ... sometimes. VAT/Sales tax is also different for different industries (I think food is about 5% while electronics is more)

Basically, individuals have more freedom than many western countries BUT companies have a lot more restrictions. It is a very clever system that "mostly" works.

[Buge]

If you can choose whether or not to pay sales tax, why would anyone ever choose to?

[larrysalibra]

VAT is different than sales tax.

Sales tax is charged on the sales price while VAT is charged on every step of the production process.

VAT is very hard to avoid. All of the inputs to your business have to have VAT charged on them - if your business didn't pay VAT on your business expenses in China, you can't deduct them as expenses, which increases the business tax you pay.

Several years ago, when I still had a business in China, you'd actually have to paste physical tax invoices into a paper book and submit it with your accounts to the relevant taxation authorities.

Chinese consumers pay very high taxes on consumption both because of the VAT system which is essentially invisible and hard to avoid and because of very high import taxes.

It was always interesting that they think they don't pay much tax but are also obsessed with buying things overseas where the prices are usually cheaper.

As other posters have noted, payroll taxes are an income tax. Places like the USA split payroll taxes 50-50 between the employer and the employee. In China, payroll taxes - called "social insurance" - are skewed towards the employer. It's been 5 or 6 years since I've employed people in Mainland China, but if I recall correctly, the company "contribution" to social insurance was on the order of 21% while employees only had around ~6% of their paycheck withheld to cover their portion of the tax.

From the business's perspective, all of these taxes are part of the employee's pay. If an employee asked to be paid 10000, she might only take home 8000 after social insurance and income tax withholding while she'd cost the company 12000. In reality she was being paid 12000 and the government was taking away 4000 of her money each month. (Rough numbers)

It was common earlier in the decade to have potential hires ask for a certain salary after tax and then expect the company to pick up the extra. This was because many businesses at the time would pay cash under the table to avoid these tax expenses.

If you're interested in learning more about tax invoices in China, you can check out a post I wrote about them ~10 years ago: https://www.larrysalibra.com/10-things-you-didnt-know-about-...

[rtpg]

No sales tax => no receipt

I went to a restaurant and they offered us a drink at the end of the meal in exchange for no asking of receipts

[jacquesm]

That goes a lot further: no receipt: no taxes at all, not just no sales tax.

[zhte415]

Because the poster is presenting in perhaps a difficult way to understand. Listed prices are inclusive of VAT/sales tax, there's a single price listed. Companies can reclaim VAT/sales tax from the tax office on presentation of valid receipts. Depending on product, sales taxes vary from 4% to 1Xs%. Pretty similar to how reclaiming VAT works in the EU.

Individuals could, for example, request a discount from a restaurant for not requesting a tax receipt (discount being in the form of some free Sprites or other small token). Smaller places might accommodate this, larger ones would not.

[adinobro]

If it is a business expenses then to get reimbursed from work you need a tax invoice. For personal sales you don't need one and generally don't bother getting one.

[jopsen]

> 2. You can choose to pay sales tax or not. It is optional.

Is it optional by law? or is it just that many sellers opt to not collect sales tax if you don't ask for a receipt?

> Basically, individuals have more freedom than many western countries BUT companies have a lot more restrictions. It is a very clever system that "mostly" works.

More freedom how?

[simonh]

>More freedom how?

From what I've seen (I have family over there), it's much less restrictive in most ways in terms of regulation and licensing. It is a very regulated society in some ways, but a wild west caveat emptor laisez faire anarchy in others. Also what regulation there is can often be circumvented by the right payments to the right people, which is a form of freedom if you squint at it right.

There's also little in the way of consumer rights. Of course if the anarchy gets too disruptive, in go the police and it gets bad for everybody. It's Big Stick regulation. The only stick they have is a big one, so they tend not to use it often, but when they do....

Take the baby powder doped with Melamine. There is no real enforcement of quality controls, but when the scandal went public and there was a huge scandal they tried and executed - actual shot in the head killed - some executives. A few months later it transpired that the confiscated baby milk powder had 'dissapeared' and was back on the market. By that time the public outcry had died down though.

[dullgiulio]

Having to bribe people to avoid rules is not freedom, however you look at it.

[simonh]

I agree completely, but many over there don't have the same expectations. As a naive participant, how do you distinguish between freedom and toleration? As a practical matter large swathes of their economy are based on that implicit model. In fact selective application of the rules is one way they stack the deck against foreign competitors operating within the country.

[coldtea]

It's just not a state approved freedom automatically given to everyone, but it's a freedom nonetheless. You get to do X which elsewhere it's impossible.

[adinobro]

You often don't have to bribe people. Just talk and explain the situation.

Laws are often strict but loosely enforced unless it is a priority.

[adinobro]

Optional by law. You often have to go out of your way to get the tax invoice. It is mainly for business rather than individuals.

As for freedom there are fewer regulations on individuals. It isn't really possible to understand until you experience it. Oppressed in some ways. More free in others.

[ovi256]

>individuals don't pay sales tax while companies do

This is the reverse of how VAT is supposed to work. End-users pay the VAT - companies can be end-users, but usually aren't, whereas individuals always are.

[adinobro]

Basically it is cheaper for the government to enforce and needs fewer people to oversee.

Also it doesn't apply to small companies only large companies.

[losvedir]

> There is an income tax but there is no income tax return.

The "tax return" is the form you fill out that computes your taxes. The "tax refund" is the money you get back if you had overpayed. Do you really mean there's no tax return? If so, how is that calculated and how is the money taken? In the US something like 80% of tax returns could be calculated by the government on behalf of the tax payer, but for whatever reason that hasn't been implemented. Is it something like that?

[pc86]

> In the US something like 80% of tax returns could be calculated by the government on behalf of the tax payer, but for whatever reason that hasn't been implemented.

The reason is that the USG doesn't have a prior knowledge of material facts that may change your return, most notably deductions and charitable donations (especially small monetary donations, in-kind contributions, used goods such as clothing, etc). You're probably right that a vast majority of returns could be accurately calculated on January 1 because they don't have a 10K, Schedules A or C, but they don't know which returns fall into that category.

Simplification of the tax code could go a long way toward increasing that percentage but I'm not sure it could ever be enough to have the government simply tabulate a bill or refund for every citizen.

[count]

The reason is that the income tax prep industry has lobbied intensely to avoid a 'if you don't file, well just use your defaults on a 1040 that we would charge you with anyways' as your filing.

For most 40-hr/wk, full time employees with one job, they should net a '0' refund, and the return should be automatically completed based on their employers weekly/quarterly filing of payroll tax records.

[pc86]

> For most 40-hr/wk, full time employees with one job, they should net a '0' refund, and the return should be automatically completed based on their employers weekly/quarterly filing of payroll tax records.

Only with eliminating the distinction between the standard and itemized deductions, and only for employees who work no overtime and earn no bonus. Who also don't have any post-tax activities that affect their tax liability (IRA contributions outside of an employer-sponsored 401(k), charitable contributions, 529 plan contributions). Who also don't have any out-of-pocket healthcare expenses beyond that threshold.

[count]

Most 40-hr/wk full time employees don't make overtime. And bonuses are usually/always taxed. And with the recent change in things, the threshold at which itemization becomes worth while has become significant.

Most. Not all. None of your exceptions changes things. The IRS should assume a net-0 based on tax records, and if the person wants to do something else, they're free to file a return.

[seanmcdirmid]

Many countries don’t require foreigners to fill out tax returns. China doesn’t have a tax return per say, but there is a complicated self reporting income process that you just do yearly. How extra income would be reported I have no idea, it was all in Chinese and I filled it out via work given PowerPoint instructions.