Mr Wu earned about 550,000 yuan ($82,000) per year but reported just 9,000 yuan, according to the Shanghai tax bureau. Among tax evaders, from Al Capone to Cristiano Ronaldo, Wu Huatao hardly stands out. Still the small-time salesman deserves recognition for his brazenness. He also claimed an exemption as an ocean-going seafarer when he was, in fact, a landlubber. Then, when tax officials called him, he blocked their numbers.
The authorities ultimately got their man. This is just one of many similar cases as China cracks down on evasion. A big deadline looms on October 22nd when wealthy Chinese must comply with a new tax on offshore trusts or face late-payment penalties. Yet there is a separate, more combustible angle to consider: whether the Communist Party faces any political risk from pushing too hard on taxation. No one is throwing green tea into Ningbo’s harbour for now. But Chinese taxpayers, like those anywhere, want to know that the government is not wasteful. And demands for budget accountability are discomfiting for a regime allergic to popular representation. So the trick for Chinese officials is to ensure that cash flows into state coffers without prompting people to dwell on their putative rights as taxpayers. Yet the system has flaws. The wealthy technically face much higher income taxes but have many loopholes to reduce their bills—including, until recently, offshore trusts. More pressing for the government, the tax structure no longer raises enough revenue. Local authorities, which had relied on land sales for much of their income, now face widening budget deficits amid a prolonged property slump. A private-equity manager recently moaned to Chaguan that his tax bill had blindsided him. The government’s new rule on overseas trusts did not exempt existing arrangements; it had applied the tax retroactively. But he had to resign himself to paying up. The government is counting on a couple of things. The rich do not really have anywhere to run, short of changing their citizenship and abandoning their businesses and assets in China. And most of the population will remain untouched, and indeed might enjoy seeing more fortunate compatriots paying up.
Because they spend a bigger share of their incomes, when consumption taxes are relied on so heavily, they hit poor people hard.
After they had subjected Mr Wu to what they caringly described as “face-to-face education” on income-tax policy, he fessed up to his misdeeds and paid his taxes and fines.
