China enhances customs compliance and tax-advantaged health insurance
Lewis Lu of KPMG China explores the enhanced policies on customs voluntary disclosure regimes and tax-advantaged commercial health insurance.
China has recently enhanced policy settings with a view to promoting customs compliance among enterprises and enhancing health protection for individuals. In this article, we will explore the recent policy developments on the customs voluntary disclosure regime and tax-advantaged commercial health insurance.
Customs voluntary disclosure rules to be further refined
On June 29 2023, the Chinese General Administration of Customs (GAC) issued a consultation paper on the customs voluntary disclosure rules, seeking public comments by July 29 2023. This aims to revise the current disclosure rules which were set out in the GAC Announcement No. 54 of 2022.
The revised customs disclosure rules make several changes, introducing new opportunities for enterprises to voluntarily disclose violations and reap the benefits of compliance. The notable changes are:
Expanding the scope of disclosure: the revised rules expand the scope of voluntary disclosure from tax-related violations to violations affecting export tax refund management, customs statistical accuracy, customs supervision orders, and violations in the inspection and quarantine field;
Extending the time limit for disclosure: the current rules provide that an enterprise may be exempted from penalty if a violation occurred within:
(i) Six months; or
(ii) Between six months and a year if certain conditions are met.
The revised rules provide an additional six months for enterprises to make disclosures for the (ii) situation, that is, the disclosure time limit will be extended from up to a year to 18 months; and
Relaxing the conditions for repeated violation disclosures: enterprises will now be allowed to make multiple voluntary disclosures for a given type of violation within the applicable time limit, without facing administrative penalties. Under the current rules, the penalty exemption does not apply where two (or more) violations of the same type are raised under the voluntary disclosure mechanism.
The revised rules will be effective from August 1 2023 to July 31 2025, repealing Announcement No. 54 of 2022. Enterprises should be mindful of the risk points highlighted in the revised rules, such as late payment penalties and the impact on customs statistical accuracy.
Enhancements for tax-advantaged commercial health insurance policy
In China, an individual can be allowed to claim up to RMB 2,400 per annum as individual income tax deductions in respect of premiums paid for qualified commercial health insurance products. This policy, known as the tax-advantaged commercial health insurance policy, was initially piloted in certain cities in 2015 and expanded nationwide in 2017.
Recently, this policy underwent further enhancements. The National Financial Regulatory Administration issued a notice to optimise the policy and improve its effectiveness. Three key updates are set out below:
Scope of applicable insurance products expanded: the scope of tax-advantaged health insurance products has been broadened to include, alongside medical insurance, long-term care insurance, and disease insurance. This expansion aims to stimulate the wider adoption of long-term care insurance, which is particularly important given China's aging population;
Insured individuals extended: previously, tax-advantaged health insurance required the policyholder and the insured to be the same person. However, the notice now allows the policyholder to be the individual themselves or their spouse, children, or parents. This change enables participants to enhance the health protection level for themselves and their families; and
Tax deduction process simplified: the notice introduces a simplified tax deduction process for policyholders. A unique identification code will be generated and used to collect and record all relevant information on tax-advantaged health insurance policies purchased by the policyholder. This simplifies the information collection process for consumers, allowing for convenient tax deductions even when purchasing insurance products from different companies.
Life insurance companies are advised to prepare for the launch of new tax-advantaged health insurance products and consider how to handle existing products during the transition period.