(Yicai Global) Jan. 7 -- China is to start taxing the income gained from equities, stocks and property shares held by investment companies with a sole owner or a partnership as personal income tax rather than as business tax, in order to clamp down on tax evasion by high-income individuals.

Equities held by individuals indirectly through companies that they have formed with sole proprietorship or as a partnership are to be classed as personal income, Wang Zheng, a partner of Ernst & Young People Advisory Services, said in response to the new rules recently laid out by the Ministry of Finance and the State Taxation Administration.

High-income earners of over CNY500,000 (USD78,417) a year are taxed at the maximum rate of 35 percent in China, which is higher than the highest corporate tax rate. Businesses are taxed according to the so-called ‘verification collection method,’ which is determined by tax authorities according to the business remit. So the manufacturing sector is taxed at rates between 5 percent and 15 percent, retailers between 4 percent and 15 percent and entertainment is in the highest bracket at between 15 percent and 30 percent.

The new rules only target sole proprietorship and partnership enterprises that engage in equity investment, Wang Zheng said. Non-equity investment companies can still apply to pay tax based on verification collection, but tax authorities will be more vigilant, he added.

Verification collection targets micro and small companies as well as startups to ease their burden, Wang Weiqing, a tax lecturer at Fudan University's School of Economics told Yicai Global. Sole proprietorship and partnership enterprises that engage in equity investment are not small companies and should be subject to audit collection, not verification collection, she added.

Tax authorities have started to tighten the screws on high-income groups and are using smart taxation techniques such as Big Data to track their assets, Wang Zheng said.

Editor: Kim Taylor