Why only 2% of Chinese pay any income tax

“OF COURSE NOT, I’m not an idiot,” says Liu Yongli, a chauffeur in Beijing, when asked whether he has ever paid personal income tax. Despite earning well above the tax-free threshold, Mr Liu (not his real name) breezily explains that he has never faced any consequences for tax-dodging. Cavalier views like his may help explain why personal income tax accounted for only 8% of total tax revenue in China last year, compared with an average of 24% in the OECD, a group of rich countries.

The finance ministry estimates that 187m people ought to be paying income tax. Yet a former finance official reckons that in 2015 only 28m people—just 2% of the population—did so. In theory, the income-tax reform on which the authorities are embarking, which the People’s Daily, the Communist Party’s main mouthpiece, is calling the most significant in the country’s history, is about narrowing the tax base, not widening it. The threshold at which tax becomes payable was raised from 3,500 yuan ($503) to 5,000 yuan a month on October 1st. The finance ministry says the number of people liable for income tax should fall to 64m as a result. But it also seems determined to make those who owe tax actually pay it—a change that could have dramatic implications for politics.