A policy jointly released by the State Taxation Administration and the NDRC yesterday signals that regulators are turning their attention towards rolling personal income taxes into the social credit system.
This isn’t huge news: we’ve known for some time that tax records (particularly corporate tax records) and social credit were to be heavily interconnected. But this policy is one of the first specifically focused on social credit and individual income taxes. The policy is light on specifics, and its release really just serves as confirmation that personal tax issues are on the SCS agenda.
The policy follows on the heels of modifications to China’s personal income tax reporting laws, which now allow citizens to self-declare tax deductions. Authorities are leveraging the SCS to encourage and enforce honest reporting.
Tax credit commitments
One particular clause calls for the creation of a standardized “tax credit commitment”, to be submitted along with personal income tax forms and included in individual social credit records. When implemented, this will probably be little more than a signed declaration in which taxpayers confirm that the information they submit to authorities is truthful.
This functions a bit like a website user agreement, forcing taxpayers to acknowledge the scope of their own reporting responsibilities before they submit information, and shutting the door on the potential for “I didn’t know” excuses in case of violations.
We’ve seen something similar in the “credit commitment letters” that Chinese companies have been encouraged to sign. As we outline in our report:
One of the most recent additions to the SCS is something called the “credit commitment system”, which was introduced in a national policy released in July, 2019. The system encourages companies to sign standardized letters promising to operate in good faith and to honor social credit regulations.
Signed credit commitment letters are openly published on the National Enterprise Credit Information Publicity System website and are included in the company’s social credit file.
Policymakers have often raised hopes that social credit can be used as a mechanism not only to punish bad behavior or reward good behavior after the fact, but to preemptively regulate behavior. Exactly how they planned to do that, however, has been an open question. The subject of “premptive behavior regulation” has given rise to lots of dystopian speculation about China’s use of AI and next-gen technologies to single out potential high-risk individuals, the fact is that the tech isn’t there yet. Nowhere close.
In our eyes, these signed credit promises – both from individuals and companies – stand in as a low-tech interim approach to satisfying the “preemptive” angle of the SCS. Requiring signatures on credit promise notes also subtly raises awareness about the existence of social credit, another stated regulatory goal.