China steps up crackdown on offshore crypto trading
China's tax authorities are cracking down on citizens who have not reported foreign investment earnings to address revenue shortfalls and regulate capital flows out of the country. Using computer data analysis and global financial information sharing under the Common Reporting Standard (CRS), officials are enforcing tax rules on worldwide income, a law largely unenforced until recent years. Significant penalties were imposed on individuals, highlighting the government’s intensified efforts to curb tax evasion and capital flight. This push is fueled by record overseas money outflows, such as $58.3 billion sent in July, and shrinking revenue from land sales and local government borrowing restrictions.
Crackdown on Undeclared Foreign Investments
Tax collectors across China are targeting individuals who failed to report income earned from overseas investments. The government is attempting to tighten its regulations, aiming to prevent money from leaving the country without proper authorization. On Tuesday, six major tax offices in cities like Beijing and Shenzhen issued nearly identical statements. They revealed that they had "reminded and coached" certain individuals to file their foreign earnings and settle back taxes, using computer data analysis to identify these taxpayers.
Efforts to Curb Tax Evasion and Capital Flight
The Chinese government remains persistent in tracking international tax evasion and enforcing rules against unauthorized capital transfers. This renewed effort aligns with officials' search for ways to reduce a significant budget deficit. Traditional revenue sources such as land sales have diminished, while borrowing limits on local governments have been tightened. This financial squeeze has motivated officials to clamp down on individuals who exploit loopholes in the system.
Specific Cases Highlight Tax Enforcement
Authorities have publicized examples of individuals penalized under this initiative. One case involves Fu from Xiamen City, who had to pay nearly 7 million yuan ($983,500) in back taxes and penalties. Similarly, a person with the surname Li in Sichuan Province paid close to 6.7 million yuan. These efforts underscore a nationwide push to ensure compliance with tax regulations.
Global Data Sharing Supports Tax Enforcement
China's tax enforcement efforts are supported by the Common Reporting Standard (CRS), a global system established in 2018 to share financial data and combat tax evasion. Though Chinese laws have always required citizens to declare and pay taxes on global income, this rule was largely dormant until 2022. Through CRS, China exchanges financial account data with nearly 150 countries and territories, enabling authorities to track down tax offenders more effectively.
Record Capital Outflows to Hong Kong
Capital flight from China reached an all-time high in July, with mainland investors aggressively purchasing Hong Kong assets following market rule relaxations. Chinese banks facilitated a net outflow of $58.3 billion last month for customers investing in securities abroad, according to the State Administration of Foreign Exchange. This marked the largest monthly outflow since records began in 2010. As more capital leaves the country, authorities are under increasing pressure to plug revenue gaps and stabilize the financial system.