Historical Studies (Chinese Edition)

No.2, 2019

 

The Nationalist Government’s Inheritance Tax Levy and the Tax Evasion Dilemma (1940-1949) (Abstract)

 

Wei Wenxiang

 

Following the introduction of a Western system of direct taxes in the early Republican period, China made several unsuccessful attempts to set up a new form of taxation: the inheritance tax. It was not until July 1940, when the Nationalist Government was beset by the financial demands of the War of Resistance, that the tax was successfully introduced. The annual budget and final accounts showed that the amount raised met budget forecasts in most years, but the tax fell far short of expectations. Official assessments and public opinion agreed that revenue should have been much higher and that tax evasion and avoidance constituted a serious problem, partially due to the novelty of the tax and its consequent lack of acceptance. More importantly, the lack of a complete system of population, household and property registration made it hard for taxation authorities to obtain complete information on assets and credit, which made checking compliance extremely difficult. The Ministry of Finance and the Taxation Bureau kept revising the inheritance tax law and introduced arrangements for administrative coordination, checks on asset registration, and pursuit of unpaid taxes through the courts, with a view to strengthening their powers of tax collection and inspection for this item. Tax control cases and disputes over public figures’ inheritances indicate that in practice, ownership disputes, asset checks and tax arrears and evasion were indeed key problems. Moreover, in addition to taxation, the civil war and the worsening of inflation meant that the Nationalist government’s tax revenue was basically used for military and political purposes; the beneficial effects of the tax trumpeted by the government and its value for the people’s wellbeing were not realized, reducing ordinary people’s willingness to pay tax.