Unpaid social security dues raise concerns#China Newsweek#-Sino-US

Path: Sino-US >> Cover Story>> 2018 >>
Unpaid social security dues raise concerns

This summer, China's social security fund collection has aroused public debate since the country issued a new policy on integrated collection of social security contribution and income tax and some authorities started collecting the unpaid contributions.

Some people are concerned the policy would create extra burden on enterprises or even lead to their closure.

The State Council, or China’s cabinet, has held a special meeting on the issue in September, calling on local authorities to continue the existing policies before carrying out the new policy on January 1, so as to not create a heavy burden on enterprises.

In the 36th issue of 2018, the China Newsweek magazine ran a cover story on the social security fund collection, taking a close look at the causes of underpayment, the impact of recovery on enterprises and the future of the system reform.

Below is an excerpt of the article.

Several minivans stopped in front of the closed gate of Changzhou Yuhua Glass Co in Changzhou city, East China’s Jiangsu province, but only one guard was present at the large factory.

“The factory has been closed, and workers have been dismissed,” the guard said. He also revealed that the factory was closed two months ago because it didn't meet the environmental protection standards.

An unnamed government worker from Chunjiang township where the factory is located said that the city has recently closed some chemical factories along the Yangtze River to protect the river.

Yuhua Glass is a township factory, and after its launch in the 1980s, it ran losses for a long time because of the low-level of technological products until Li Liangda started to manage it and made it profitable.

The company used to have nearly 1,000 workers, but in recent years, because of the environmental protection and low profit, when it was closed, there were only over 100 workers.

Recently, the Changzhou taxation bureau sued the company for unpaid social security dues, which made the company a focus of the whole country because it pointed to a possible trend of collecting unpaid dues.

Recovering unpaid dues

On August 23, Changzhou’s Xinbei district court issued an administrative ruling to enforce the collection of 1.8 million yuan in unpaid social security dues from Yuhua Glass.

As early as December 2017, the then Changzhou local taxation bureau decided to collect 2.01 million yuan that the company had owed in 10 years, but it did not make full payment.

On July 31, the new Changzhou taxation bureau that was formed from merging the national taxation and local taxation bureaus in the city issued a notice to urge the company to pay the remaining dues within 10 days.

When Yuhua Glass did not pay the dues on time, the bureau brought the case to court.

Though the court ruling has detailed the reasons for enforcement, the case still aroused public attention since a worry about enterprises facing increasing financial burden of social security contributions after the taxation system reform.

According to the country’s reform plan on taxation, from January 1, 2019, the taxation authorities will take charge of the uniform collection of social security dues. Currently, social security departments are responsible for the collection.

The taxation bureaus have the comprehensive income data of enterprises and individuals, which will leave no room for companies evading or paying less social security contributions.

At present, China uses the average salary of urban workers at non-private units in the previous year as the base for social security contributions, with 300% of the base as maximum level and 60% as the minimum level.

In the long-term, in order to reduce the payment, some enterprises concealed the real salary level, and paid the social security contribution at the minimum level or less, or even didn't pay.

A recent report showed that 25.11 percent of enterprises complied with payment obligations to the social security fund in 2016, down from 38.34% in 2015 and in 2017, the figure lowered to 24.1 percent.

It is predicted that when the tax and social security collection is unified, companies and individuals who are used to not paying the dues according to standards will see a rise in their costs.

Along with the increase in future collection, enterprises are also worried about the authorities recovering the unpaid dues.

On June 15, the Heilongjiang provincial taxation department issued a notice on correcting the malpractices of non-payment or partial payment of social security dues, focusing on companies in property, construction and security sectors.

In Jiangsu province where many private companies are located, similar notices were issued in several cities such as Changzhou, Lianyungang, Suzhou and Nantong.

According to incomplete statistics from the China Newsweek, the Changzhou city taxation bureau has issued four notices within two months, involving 2,352 companies. The amount of unpaid dues ranged from several hundred to millions of yuan.

Yuhua Glass is one of the companies listed in the notices.

“In the past, the company paid the social security dues once when a worker retired. Every year, there were only a few workers retiring, and the pressure was not so huge,” the guard said.

A Changzhou taxation worker said that Yuhua Glass could not use the previous method because it has been closed, and some workers brought the case to local social security and taxation authorities for not paying the medical insurance.

The tax authorities have negotiated with Li Liangda, and Li has paid part of the medical insurance, but the amount was too large, and he could not pay all of it in a short time, the worker said.

When a company is closed, its social security account could not be closed if their outstanding payments, and only through the court ruling could the account be closed, even if the unpaid dues were not recovered.

Division of revenues

Different from the top-down approach of the past, the collection of unpaid social security dues was not initiated by central taxation authorities but by the local governments.

When the country unified national and local taxation systems into a new national one, some experts said that the seemingly simple integration will see an income distribution tussle between central and local governments.

After the unification, all tax income will go to the national level and then the central and local governments will share the income, but local governments will have less control over the financial resources.

Now, social security funds are controlled by the local governments, and some experts have said that the current trend of recovering unpaid dues is triggered by the local governments' bid to bolster their finances.

The current system acts as a disincentive for companies to pay dues, since companies paying dues legally will bear a heavier burden than other companies, said Lou Jiwei, chairman of the National Council for Social Security Fund.

Hu Yijian, a professor from the Shanghai University of Finance and Economics, said the reform to integrate tax and social security collection will fix the companies’ obligations, with the ultimate goal to reduce their burdens.

Sun Jie, a professor from the University of International Business and Economics, said that the reform's real significance lies in the fact that it will allow overall national planning for social security.

Currently, different provinces, regions and municipalities have different levels of basic endowment insurance, and some places have little income to cover the pension payment, and some have contributed the most to the shortfall in the fund.

A unified national social security system will make the system, especially the pension payment, sustainable as the country braces for population aging.

Another boot

According to the current social security payment ratios, companies will pay 29 percent of a worker’s salary and a worker will pay about 10.5 percent of the salary to the social security fund.

Changzhou would adjust the base of social security contributions every July, and it has raised the base from 2,940 yuan for the past year to 3,125 yuan in July.

If the company pays at the maximum rate, it will be 4,531.25 yuan for each worker per month, and each worker will pay 1,645.6 yuan per month. The maximum amount is five times higher than the minimum level.

Therefore, many companies have paid the social security contributions at the minimum rate, but they are worried about the possibility of the taxation department examining the payment and recovering the unpaid part.

When the country starts carrying out the unified taxation reform that is aimed at collecting taxes and social security contributions based on real incomes, companies may face heavier burdens.

On September 6, the State Council regulated that before putting the reform into practice, all places should maintain current policies, and embark on research on lowering the ratios, with the aim of not putting more burden on the companies in general.

Premier Li Keqiang stressed at a State Council meeting on September 18 that authorities should comply with the State Council’s plan to not increase companies’ burdens and ensure consistent tax collection.

In the cases of uneven collection in past, local authorities were prohibited from collecting all of the unpaid dues at once, according to Premier Li.

Sun Jie said that there is still a big room for lowering the companies’ contributions to social security fund, but it should be based on the calculation of economic development and population indicators.

Taxation authorities should make the details clear as soon as possible, providing reference to central authorities for making decisions, Sun said.

Fan Yong, a professor from Central University of Finance and Economics, said that when the new taxation system is implemented on January 1, the ratios and base of social security contributions might not decline immediately.

Related Stories
Share this page
Touched Sympathetic Bored Angry Amused Sad Happy No comment

China is dramatically cutting US oil imports, analyst says, even though it's not on tariff listGM and VW feeling pain as China buying fewer carsWill the Sino-US trade spat plunge the world into a new cold war?China targets extremely 'greedy officials' as anti-corruption campaign continuesChina to free up more cash for economy amid trade war with USMortgage debt puts pressure on Chinese families, poses ‘systematic financial risks’: studyMike Pompeo and his Chinese counterpart Wang Yi trade harsh wordsChina says it's not afraid of a trade war with the US — its actions show otherwiseChina admits Interpol president under investigation after disappearanceChina makes a big play in Silicon Valley
< Prev Next >