Chinese authorities are ramping up efforts to monitor and tax offshore cryptocurrency trading. This initiative is part of a broader strategy to address unreported foreign earnings from investments, which has become a significant concern for the government.
On Tuesday, six tax offices in major cities, including Beijing and Shenzhen, issued nearly identical statements outlining their intentions. They emphasized that individuals who had not reported their foreign earnings were being reminded and instructed to pay any owed back taxes. Utilizing advanced computer data analysis, officials have successfully identified many of these individuals.
China”s renewed focus on this matter comes against a backdrop of a pressing budget shortfall. With revenues from land sales dwindling and tighter borrowing regulations imposed on local governments, authorities are exploring new avenues to bolster their finances.
Specific cases have emerged, highlighting the severity of the crackdown. An individual identified as Fu from Xiamen was mandated to pay approximately 7 million yuan, nearly $983,500, in back taxes and penalties. Another individual, Li from Sichuan province, faced a similar situation, owing close to 6.7 million yuan. This aggressive tax collection strategy is not entirely new; records indicate that local authorities had initiated comparable actions as recently as late March, according to Bloomberg.
This intensified tax enforcement coincides with guidelines established under the Common Reporting Standard (CRS) in 2018. This international framework facilitates the sharing of financial information among countries to help identify tax evasion. Although Chinese regulations have long stipulated that citizens must pay taxes on global income, including investment profits, enforcement of these rules has only recently gained traction.
As part of the CRS, China has been automatically exchanging account information with almost 150 countries and territories. This exchange is crucial in identifying individuals who owe taxes in each participating nation.
In July, China witnessed a record capital outflow, as mainland investors aggressively purchased assets in Hong Kong following a relaxation of market regulations. Figures from the State Administration of Foreign Exchange reveal that banks in China facilitated a net outflow of $58.3 billion for clients seeking to invest in various securities, marking the highest monthly outflow since records began in 2010.
With increasing amounts of money flowing overseas, Chinese authorities are under mounting pressure to fill revenue gaps while simultaneously preventing capital flight that could destabilize the financial system.
