China admits jumping gun on new foreigners' tax

Reuters News
Posted: Oct 28, 2011 2:13 AM

BEIJING (Reuters) - A Chinese official admitted on Friday that they had jumped the gun on a new tax on foreign workers mandating they pay social security contributions before the government had worked out exactly how the system would be implemented.

But Xu Yanjun, deputy head of the Ministry of Human Resources' National Social Security Management Center, said there would be no going back on the scheme, despite concerns in the business community it will push up already rising costs.

"Local government have not made full arrangements yet for receiving the payments or registering people, that is the case," he told a news briefing.

"Maybe the legislation process has delayed the implementation ... Local governments have had some difficulty implementing the measures at an operational level. It will take time."

Local tax authorities have been asked to get the system running by the end of the year, but foreigners will have to back-pay contributions to Oct 15 when the rules went into effect, Xu added.

More than 200,000 foreign workers will have to pay the contributions, as will their employers.

He was unable to say how foreigners would be able to access services such as unemployment benefits, since work visas are tied to jobs and become invalid in the event of being laid off, or if there would be a special visa issued to enable pension claims.

"There is a difference in the way laws are made here compared with in the West. In China it is a level-by-level process, with implementation done at the local level," Xu said.

"We cannot at the moment address all questions once and for all ... Some new problems have come up and we are working hard to address them and we need some time to do so, rather than answering yes or no to any question at the moment."

Foreign executives in China have complained that the scheme will increase costs further in the world's second largest economy, and that the plan is too vague and will be hard for companies to implement.

Xu said China was simply following international commitments with the rules incorporating foreigners into its social security net and was committed to "protecting their rights".

China's rules will make it more like policies in many EU countries, where citizens and foreigners alike pay into the system.

China's existing social security net offers very meager protection for its own citizens, especially compared with some of the more generous schemes in Europe, and Xu did not give details on what exactly foreigners would be eligible for.

The tax will be about 10 percent of salaries, he said, and individual contributions will be refunded upon workers leaving China, he added, without saying how that would work.

Xu blamed foreign countries, including the United States, for refusing or being unwilling to talk to China about bilateral tax exemption agreements, so employees who pay contributions at home do not have to do so again in China.

"It's not for me to say who is not willing to talk about this, but we have felt that up to now the United States has not proposed discussing this with us," he said.

(Reporting by Ben Blanchard; Editing by Ken Wills)