The AP, China and taxes

It’s not unusual to find misleading, distorted stories in the media. It’s also not unusual for me to wave off the distortions, because, well, I know better and I can glean something from the story anyway. Today, however, I want to direct you to this AP story about foreigners in China squeezed by pensions, taxes. Or that’s what they want you to think. I know who you’re thinking about now — me, right? I would know!

So: Are pensions and taxes squeezing me?

Not really!

First of all, which is worse to an American: China or taxes? Which is more responsible for our country’s decline? There’s no denying, especially with it perpetually being election season, that there are strong cases to be made for both. But what happens when you combine the two? How much worse is it to be paying taxes to China??? Overly dramatic headline.

Communist China does not take all of my hard-earned RMBs and give it to the PLA to dig a bunch of tunnels for their larger-than-defense-analysts-think nuclear arsenal. At my old job, I gave them less than 10 percent of my gross income (base pay + various stipends). If you’re really interested in how China calculates how much individual income tax to collect from people, Wikipedia has a handy table!

Wikipedia, unfortunately, does not have a handy table about the new tax in question: the Social Insurance Tax. Admittedly, there are still many legal and implementation issues surrounding the tax and the law that invented it. Anyway, here’s what the AP article says about it:

The biggest worry for many is an abrupt order for foreign workers and their employers to start paying up to 40 percent of their wages for pensions and other welfare.

[…]

The pension and medical charges took effect Oct. 15, less than six months after they were announced.

This is not true. The tax was first proposed last year in April (more than 1.5 years ago!), promulgated that October and effective nationwide July 1 of this year. Basically, the law was announced a year ago before they took effect, and the effectiveness was even delayed by a few months from the original date in July — all because foreign companies balked at the idea (when it was pointed out at the end of May by state media) of paying more and stirred up debate.

How much more? Quite a bit! The exact amount is determined locally, but generally:

Based on what applies to Chinese employees, the cost could be 37% of monthly income charged to employers and 11% for employees, up to a threshold amount set locally, according to Christopher Xing, a China tax partner at KPMG. The charge in Shanghai, for instance, is based on a maximum monthly income of 11,688 yuan, about $1,800, meaning a monthly hit of $666 per worker for employers and $198 for each employee. (emphasis mine)

From another WSJ article with more details, in Beijing, the salary cap is 12,603 yuan ($1,981) and individual contribution is just a smidgen over 10 percent.

With soaring inflation and rising costs of living, I could probably use that money. But another 1,500 RMB is hardly being “squeezed.” Sure, employers have to pay about 32 percent more, so I can sort of understand if they feel squeezed. But then the article decided to focus on multinational corporations, and all of my sympathy melted away.

And, hey, look at that part I bolded above: the same tax applies to the Chinese. They pay into the same fund at the same rates. So do Chinese companies that hire foreigners (and they hire quite a few). But you wouldn’t know that by reading the AP article because they talk about it like it’s some racist money-sucking scheme by lumping it with this paragraph:

The changes come against a backdrop of critical coverage by state media of product safety and other complaints against high-profile corporations such as Wal-Mart Stores Inc. and energy giant ConocoPhillips Co. Companies also are uneasily awaiting the release of new patent and copyright rules they worry might push them to hand over technology.

Journalists call this “context” but it’s just not right. There have been loads of stories about how foreign companies feel like China is becoming unfriendlier all the time. I agree! China is hardly innocent when it comes to ripping off foreigners (it’s true, they see us as loaded cash registers — visa fees? giant import duties? beer that is double the price of what it should be?), but it’s just not quite the case here.

Now, the problem with the tax is one most Republicans can relate to (but my problem is based on reality). We foreigners are essentially paying into something that is supposed to provide us benefits but, in reality, probably never will. The five “social insurances,” as the Chinese call them, are pension (think Social Security), medical (think Medicare), unemployment (think Unemployment Benefits), work-related injuries and maternity. Work-related injuries and maternity insurance would be the ones most likely applicable to foreign workers, who often stay for a few years and leave. Because our visas are often tied to our employment, we’re kicked out of the country if we don’t have a job, so it’s hard to think of a case where we could collect unemployment benefits. For medical care, most foreigners would never go to a Chinese hospital for something they need help with payment for. And pensions? Ha. China practically actively discourages foreigners from really settling down here.

Which leads to the second reason a lot of foreigners have a problem with the tax: The law is just not clear. Can we get our money back without excessive bureaucratic hurdles? We just don’t know. Probably not. But I’m not going to squabble about losing a month’s salary’s worth to the greedy Chinese government when I’m already living a comfortable life (as most, if not all, foreigners* are) and don’t need the money.

That is, I won’t miss the money until I do need it to help pay the medical expenses incurred from my Beijing pollution-induced lung cancer. Then I probably will wish I hadn’t been so nice to the Commies :(

*When both Western media and Chinese use the term foreigner, they usually mean rich people from the West. I apply this definition here, knowing full well that there are many foreigners from poorer parts of the world living here.

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