Liu Xiaoqing was one of China's best-known success stories -- a movie star who parlayed her fame into a multimillion-dollar business empire.
But when she was led away from her Beijing villa in handcuffs one morning, she won a new notoriety -- as the first Chinese celebrity arrested for income tax evasion.
Experts and officials say Liu's heavily publicized June 20 arrest was the opening salvo in a crackdown on rampant tax evasion by China's new rich.
PHOTO: AP
The crackdown has been building for some time. Last August, the national tax bureau in Beijing sent local tax offices a list of high-income jobs to keep an eye on. It started with entertainers and sports stars and included entrepreneurs, lawyers, accountants and all foreigners.
Since Liu's arrest, state media have chimed in with warnings about merciless audits of high-earners.
Last month, the official Xinhua News Agency called tax evasion a "social cancer." Tax officials quoted by state media say only four of the 50 richest people in China paid income taxes last year.
Driving the crackdown is the ruling Communist Party's fear of rising public anger at the growing gap between a wealthy few and the majority of China's 1.3 billion people, many of whom feel left behind by a surging economy.
In a statement on its Web site, the State Administration of Taxation of China linked tax evasion to corruption, one of the biggest causes of popular resentment with communist rule.
"The masses are growing increasingly discontent with the unequal distribution of wealth and the phenomenon of corruption," the statement says.
"Strengthening regulation of high-income earners ... is not only an economic problem, but a social problem and a political problem."
The administration refused interview requests.
Experts say rampant tax evasion reflects the party's failure to keep pace with China's increasingly market-driven society.
They say the government is struggling to build a modern tax system in a nation where just a few decades ago wages had been under the drab conformity of a planned economy.
"China's weak tax collection system has lagged behind the country's economic growth," said Luo Ning, a tax expert at People's University in Beijing.
Even so, income tax revenues have soared during two decades of market-oriented reforms. They rose from US$19,000 in 1980 to US$12 billion last year, according to the tax administration.
Experts such as Luo say China's tax burden is light by world standards. Someone making the equivalent of US$50,000 a year would pay 20 percent, or US$9,600.
Only the wealthiest 5 percent of Chinese need pay any income tax at all, Luo said.
Taxes are only charged on salaries above US$1,200 per year -- three times the national average income and far more than most farmers and laborers make.
Still, experts and officials say tax evasion is widespread among the biggest pool of taxpayers -- the growing economic elite of China's prosperous eastern cities.
But more public anger has been directed at cases involving the super-wealthy such as Liu Xiaoqing, the arrested movie star.
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