The Pace of Change

China's Beaureaucratic Machine is certainly not a well-oiled one at the moment. In the space of the last few weeks, we have been struck twice by examples of the inability for one part of the machine to communicate with another and twice again by complete bolts from the blue.

1) Personal Taxation: In Early November I received this update from PwC that highlights new requirements for the personal declaration of Individual Income Tax. The regulations introduced in November apply to 2006 and require that I (and an awful lot of other people) now have to file a personal tax return. Previously that was done by one's employer but this has to be done in addition. So far the deadline (March 31st 2007) is quite clear but, as the PwC article points out, exactly what is, or isn't, in scope for expatriates is as yet unclear. Contacting my local tax bureau reveals that they appear to be just as surprised as we are by the introduction of this new rule so, despite the looming deadline, they don't know what we need to report, or how.

2) Street Names: We arrived in China just after three roads (文一, 文二 and 文三) had their western names renamed to something completely different causing no end of fuss because the taxi drivers didn't know where 文新 road (formerly West 文二) was. No sooner did they get the hang of it when they were all renamed again to (文一西, 文二西 and 文三西) roads (西 meaning West).

Well, it's happened again. I missed the turn for one of our offices because I was looking out for the road name on the street signs. It was only after I realised I'd passed the office and had to turn round that I realised that the name of the road has been changed. Raising this with my admin staff to check the facts, they assure me that they have contacted the post office who are adamant that 伟业路, the new name that's on the signs right outside of our office, is in fact in a completely different part of town. I guess we don't need to change our stationery as long as the post office thinks the name hasn't changed but it might deter our clients from calling.

3)Housing Benefit - This is a popular employment benefit for most staff where employers can contribute up to 15% of salary (which is free of tax, thus popular) to the 'housing fund'. This, the employees can use to buy a house, pay mortgage payments, etc. The employee has to contribute a matching portion, again, tax free.
The government has suddenly announced a very significant drop in the amount that can be paid in to the housing fund. It seems very likely that this will lead to employee dissatifaction with the employer (rather than the government) unless the employer does something to compensate but, giving the cash instead of the benefit will still result in a significant net loss to the employee as it will all become taxable. This leaves the employer in the irritating position to be faced with either significant staff dissatisfaction or significant extra cost.

4) Local Medical Taxes - Another sudden introduction in December starting Jan 1st. All Chinese staff suddenly find their compulsory government medical insurance taxes increasing by, wait for it, 4300%. OK, it's only 4RMB/month now but increasing it to 88 RMB in one go is quite a leap. At the same time, the employer contribution increases from 0 to 2.5% of salary, increasing the misery of the housing benefit change.

As an employer, this is one of the great irritants of doing business in China - it's not that the employment landscape changes but, like much of Chinese business life, everything happens suddenly and often in completely incomprehensible ways.

It is very difficult to get a complete picture of the landscape any point in time, let alone keep up with the changes. When we first came to China we asked everyone we could find about all of the benefits, taxes, fees, surcharges and miscellaneous laws that would cost us money and people told us all sorts of things. Despite knowing about pension contributions, housing benefit, income tax, corporation tax, sales tax, VAT, birth insurance and the like, no-one mentioned that we would have to pay stamp tax (on every contract we sign), water conservancy tax, a fine for not having any disabled staff (effectively a tax)... and that was just the position on October 1st 2003.