Starting from 1 October 2005, China has introduced income files for each taxpayer. Under the Measures for the Administration of Individual Income Tax promulgated by the State Administration of Taxation (SAT), a personal income information system is set up. The measures also stipulate that the income information of all taxpayers will gradually come under unified management. High income earners will be closely monitored, and tax dodgers will be prohibited from leaving the country.

Before, individual income tax was mostly collected through employers which served as the withholding agency. In the vast majority of cases, the withholding agency only filed a lump sum with the tax authorities without providing a breakdown by individual taxpayer.

Under the new measures, instead of reporting a lump sum, the withholding agency must provide detailed information of their individual employees such as their basic personal particulars, amount of income, amount of withholding tax, as well as other relevant data.

Using the identity card number of the taxpayer as reference, the tax authorities will build a separate file for each taxpayer based on the detailed information received from the withholding agency and the data submitted by the individual taxpayer. The new system will enable more detailed management of individual income in terms of data categorisation, sorting, collation, comparison and analysis.

The measures embrace the concept of managing the total income of all taxpayers. After building a comprehensive information system on all individual income tax payers, the tax authorities will then identify "key" and "problem" cases to monitor as well as certain targets to investigate whether they have made full payment of the tax amount due. The objective of the new system is to curb tax dodging and ensure the collection of the tax amount due through data collection and analysis, and tax assessment. The ultimate target is to shift the management focus from high income earners to all individual income tax payers.

The measures also provide detailed operational guidelines for managing high income earners. High-pay professionals, individual investors, TV/movie celebrities, singers and sports stars, as well as visiting foreigners giving performances in the mainland are among the key targets for monitoring by tax authorities.

Tax authorities at the local level will also identify a certain number of individuals as key targets to carry out detailed management on an on-going basis. The target groups include freelance workers who are high income earners, well recognised, and have access to various income sources without a fixed employer. Also included are individuals who have a large impact on tax collection.

Tax authorities will monitor the income received and tax payment made by these targets on a regular basis. Prompt action will be taken to plug management loopholes once irregularities are found during the data mining and analysis process. Moreover, provincial tax authorities will compile half-year and yearly reports on the basic data of the targeted taxpayers, such as income and tax paid, for submission to SAT before end of July of the current year and end of January of the following year respectively.

Professor An Tifu of Renmin University¡¦s School of Finance pointed out that the unified tax information system and monitoring of high income earners are effective measures by the central government to strengthen individual income tax collection. However, he suggested four vital measures to be taken to boost tax collection efficiency and quality.

First, the system of permanent, unique taxpayer numbers should be introduced on a gradual basis. The taxpayer number can be the same as a person¡¦s identity card number and social security number which a withholding agency has to obtain before making withholding tax payment. This system will give a full picture of a person's tax payment and social security status.

Second, income should be monetarised. At present, some employers pay their employees in cash, others pay in kind or in the form of overseas travel allowance. This makes it difficult to ascertain the actual amount and nature of remuneration received by individuals.

Third, cash management should be strengthened and the use of credit card popularised. Large payments must be settled by banks and not in cash. In fact, cash transactions are often under strict control in foreign countries.

Fourth, banks and tax authorities should be linked up. If banks and tax authorities are connected by computer networks, the bank can alert the tax authorities whenever a large transaction takes place. This will also help combat corruption and promote clean government.

The measures also state that tax authorities will check the tax payment made by taxpayers in connection with their purchase of cars and property.

To access more information related to taxpayer income, tax authorities will strengthen ties with various government departments such as public security, procuratorate, law courts, industry and commerce administration, banks, cultural and sports, finance, labour, property management, transport, audit and foreign exchange control.

Through contact with pubic security departments, tax authorities can obtain entry-exit data of individuals without domicile in the mainland and information about their stay in the mainland. Individuals with outstanding tax payment will be prohibited from leaving the country.

Through contact with industry and commerce administrations, tax authorities can access the latest alterations filed by taxpayers concerning business registration details, and shareholding and share capital of joint stock companies.

Also through working with cultural and sports departments, tax authorities can obtain the latest information about performances and tournaments. They can then monitor the event organisers to see if they have duly performed their duties as withholding agencies.