On the 27th and 28th of April 2022, the Sino-German Legal Cooperation Programme of GIZ conducted an online workshop on German individual income tax legislation on behalf of the German Federal Ministry for Economic Cooperation and Development (BMZ). The request for the event came from the Budget Affairs Commission of the Standing Committee of the National People’s Congress of the PRC. It stems from the Chinese government’s interest in reforming its own income tax legislation and incorporating international experience and “best practices” therein. The Budget Affairs Commission is usually the leading body responsible for drafting significant budgetary, financial and taxation policy and legislation in China and is thus a long-time and key partner of GIZ’s Sino-German Legal Cooperation Programme.
The workshop was opened by the Deputy Director-General of the Legal Department of the Budget Affairs Commission, Mrs. Cai Qiaoping. In her brief presentation of the Chinese individual income tax system, Mrs. Cai addressed one of the most striking differences of the individual income tax systems between China and Germany: While individual income tax in Germany is the largest and most fruitful tax type, in China it has so far been of comparatively minor importance with a share in total tax revenue of around eight percent.
The workshop centered around a presentation of the German individual income tax system by two German experts, Mr. Karl Ernst Blesinger and Dr. Sven Sobanski, from the Federal Finance Academy at the Federal Ministry of Finance.
The first day of the workshop provided the Chinese participants with a general overview of German individual income tax law. The experts placed particular emphasis on the basic concept underlying German individual income tax law, from the definition of the group of taxpayers to the importance of the principle of equality enshrined in the German quasi-constitutional Basic Law. In her concluding remarks, Ms. Cai emphasized that in China, too, the design of the individual income tax system must follow the principle of equality in the constitutional sense and that this principle would be upheld in the reform of the income tax legislation. The Chinese participants were particularly interested in the German linear marginal rate of tax. Whilst taxpayers in China also go through all the tax rate zone before the respective marginal tax rate is applied, unlike in Germany, the latter does not increase gradually with increasing income, but rather in sectional increments. The advantages and disadvantages of the respective systems were discussed jointly by the German and Chinese sides during the discussion.
The second day of the workshop focused on the taxation of individual income from capital assets in Germany. A list of questions from the Chinese side had already been shared with the speakers in advance. Against this backdrop, the presentation by Dr. Sobanski put particular emphasis on methods for determining individual income from capital assets, on the determination of an appropriate tax rate for individual income from capital assets and on the liquidation effect of the German capital gains tax. Subsequently and based on several concrete scenarios, differences and similarities between the German and Chinese individual income tax systems were jointly reasoned and discussed.
The workshop was attended by around 25 participants, mainly from the Budget Affairs Commission of the Standing Committee of the National People’s Congress, as well as from the Legal Affairs Commission of the Standing Committee of the National People’s Congress, the Chinese Ministry of Justice, the Chinese Ministry of Finance and the State Administration of Taxation. The questionnaires submitted by the Chinese participants showed that the Chinese side not only emerged from the workshop with a much better understanding of the German individual income tax legislation system but were also looking forward to further in-depth exchanges. The Chinese side also asked the two German experts many follow-up questions after the workshop. The GIZ Sino-German Legal Cooperation Programme of GIZ will continue to facilitate further bilateral professional exchanges on this topic in the future.