China Must Raise Taxes on Ultra-Rich To Fight Inequality: Ex-Adviser

China should raise taxes on the income and properties of high-income groups, a prominent economist has said, arguing the move would align government incentives with protecting property rights and reducing broader social inequality.

Liu Shijin, a former deputy head at the Development Research Centre of the State Council, argued that China’s fiscal system should shift from its reliance on indirect taxes – levied on the circulation of goods and services – to direct taxes imposed on individual wealth.

“Once properties become a stable tax source, local governments will be more serious and sincere in protecting your property,” he said.

Liu – who also served as a member of the Chinese central bank’s monetary policy committee from 2018 to 2024 – was addressing concerns that raising taxes on high-income groups might undermine property rights or destabilise investor expectations.

But experience has shown that government conduct is closely related to its revenue sources, he added, suggesting that a state funded through wealth taxes would be incentivised to ensure the security of those assets.

Liu’s comments, made at a Beijing forum organised by the China Europe International Business School on Friday, came at a time when authorities are facing significant fiscal pressure.

With the property sector slump causing a sustained fall in land sales revenue, local governments are looking for other ways to fill their coffers.

China’s fiscal revenue declined 1.7 per cent to 21.6 trillion yuan (US$3.17 trillion) last year – falling for the first time since 2020, the first full year of the coronavirus pandemic.

In recent months, Beijing has intensified tax crackdowns on ultra-high-net-worth individuals and tightened oversight of its citizens’ offshore assets. This includes the enforcement of a 20 per cent tax on capital gains and dividends from overseas exchanges, alongside potential late fees, for income dating back to 2022.

Responding to concerns that raising wealth taxes might prompt the wealthy to relocate, Liu noted that tax rates on property, wages and capital gains in many other jurisdictions were higher than those currently in China.

The revenue generated would help tackle income inequality, Liu said, noting that China’s Gini coefficient – a common gauge of wealth disparity, with zero indicating perfect equality and one indicating perfect inequality – has long remained above 0.4, significantly higher than the 0.3 level typical of high-income societies.“In the next steps, we need to … expand China’s middle-income group from the current figure of around 400 million people to between 800 million and 1 billion,” he said.

Beijing’s scrutiny on the ultra-wealthy might bepaying off.