Talk of Inheritance Tax Sparks Debate in China

October 3, 2013, 8:30 AM

Talk of Inheritance Tax Sparks Debate in China

Whether or not to tax the dead has become a big question in China.

The country doesn’t currently have an inheritance tax—also commonly known as the death or estate tax—a levy paid by people who inherit money or property, or a tax on someone’s estate after they die. But a recent media report has sparked discussion about whether China should start levying such a tax, and if so, how heavy rates should be. The private 21st Century Business Herald reported (in Chinese) on Sept. 27 that the Communist Party’s top decision makers will consider the inheritance tax at the Third Plenum, a key meeting of senior leaders expected in November, citing Liu Heng, an academic adviser to the nation’s State Council, or cabinet.Since then, more than a million posts about the inheritance tax have appeared on Sina Weibo, a popular microblogging service in China. The topic has become so popular in cyber space and among local media that Mr. Liu posted a statement on the Counsellors’ Office of the State Council website (in Chinese) on Tuesday, calling the  21st Century Business Herald report inaccurate and saying he had no knowledge of any documents to be discussed at the meeting.

China drafted a law that would allow it to levy inheritance taxes in 2004, but it hasn’t yet been formalized or enforced. The finance ministry said in 2008 that an inheritance tax would help to boost social programs based on international experience, and the ministry has been working with the central government to conduct studies about the tax (in Chinese).

When outlining policy guidelines to help tackle income inequality in February, the cabinet said the government may aim at some of the most sensitive areas of wealth accumulation by taxing inheritance and real estate.

Supporters of the inheritance tax say China’s widening wealth gap demands it. A Peking University survey found that in 2012, the bottom 25% of China’s households accounted for just 3.9% of total income, compared with 59% for the top 25% of earners.

“The inheritance tax must be levied, but the key is the threshold so it won’t hurt the middle class,” one user of Sina Weibo wrote.

The tax could also help China reduce its reliance on investment by boosting consumption because people would have more incentive to spend more to avoid heavier tax payments, wrote Chen Su, a member of the National People’s Congress, in a proposal (in Chinese) to the legislature.

Most online voices disagreed, however, saying China is not ready for the tax.

Chinese have access to their current properties for 70 years according to land law, but they still have no real titles to the land, which would make it difficult for the government to levy an inheritance tax, another Weibo user said. According to a law governing urban land transactions, land for residential purposes is leased for up to 70 years, while industrial land can be used for up to 50 years.

Others say without a mechanism in place to ask government officials to disclose their wealth, it’s unfair to start levying the tax. And some are simply concerned that the proceeds from the tax wouldn’t be enough to boost the existing social-welfare system.

“As for the inheritance tax, if you want to levy it, I don’t have any problems with that. But first I need to know what social benefits do we enjoy: free medicare? Free education? Free pension?” one Weibo user said.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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