Why are mainland China’s tax officials suddenly so interested in my Hong Kong MPF?

For the past few months, this newspaper has extensively covered China’s ongoing clampdown on tax avoidance, especially its push to tax the income of super-rich families held in offshore trusts.

We never expected to become targets of the campaign ourselves.

But there have been signs in recent weeks that officials are starting to take an interest even in the incomes of South China Morning Post journalists, with several of us being contacted by the tax man.

First, a colleague with our Beijing bureau received a text message from the city’s tax service, issuing a “warm reminder” to declare any holdings in “offshore trusts”.

“To further assist you in fulfilling your tax obligations and help you avoid tax risks, you are kindly requested to promptly notify us of any offshore trust holdings and complete the required tax declaration and payments,” the message read. “We thank you for your cooperation and full support.”

Then, at the end of last month, I received a polite yet baffling phone call from Shanghai’s municipal tax bureau, which had taken a particular interest in Hong Kong’s Mandatory Provident Fund (MPF) – the city’s compulsory retirement savings scheme.

“Sorry for disturbing you,” the caller said. “We understand that the MPF has been categorised as a type of offshore trust, and so we wonder if we could gather some information.”

She then asked to check my mainland China tax payments during my two-year stint working in Shanghai, before demanding details about the monthly contributions that I and my employer make to my MPF account in Hong Kong.

I explained to her that the MPF was a de facto pension fund mandated by Hong Kong law for all wage earners, and so it was a bit far-fetched for mainland tax officials to label it an “offshore trust” – a tool usually seen as the preserve of the wealthy.

“Just like Hong Kong’s Inland Revenue Department won’t try to collect tax from social security accounts in mainland China, it would be utterly outrageous if the mainland moved to tax the MPF, a pension and retirement savings fund,” I said.

In response, the official quickly apologised for the abrupt call and any impression that she was “chasing taxes”.

“It’s nothing more than part of our routine work collecting and updating records,” she assured me, adding that she would mark down my statement and that normally no further actions would follow.

But I took the opportunity to continue the discussion, telling her it would be better if mainland tax authorities could clearly define what they consider to be an offshore trust, taking into consideration the fact that people overwhelmingly feel that pension funds like the MPF should be spared.

The official said she would “relay” my suggestions to her supervisors, adding that – as a frontline worker – she was told to make these calls.

I also pointed out that the policy could potentially affect Shanghai’s ability to lure global talent.

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“As mainland China’s most prominent commercial and financial hub, tens of thousands of people from Hong Kong and abroad work in Shanghai,” I said. “Many of them may reconsider Shanghai if their offshore savings and pensions are taxed.” She concurred.

The call ended with her repeatedly stressing that I was not facing a tax demand and that the tax bureau was simply “canvassing” some individuals to gauge their opinions.

“Personally, I also think pension and retirement savings, in whatever form, should not be taxed,” she said.

Beijing has launched an effort to tighten its tax enforcement policies over the past couple of years, which has included new measures to collect taxes on overseas income and assets such as offshore trusts, cross-border insurance policies and overseas equity investments.

The campaign is designed to boost the finances of local governments, which have come under strain as land sales have plunged amid China’s property downturn and an economic slowdown has affected tax revenues.

In July, China’s Ministry of Finance and the State Taxation Administration announced that all income in offshore trusts would face a flat 20 per cent tax. The tax applies at each stage of a trust’s life cycle: the transfer of assets into the trust, income earned during its operation, as well as its eventual closure.

Many economists have pointed out that China, like any country, has the right to collect taxes based on its laws and plug tax loopholes as it sees fit.

But concerns have still been raised that the campaign could lead to aggressive tax enforcement, with inconsistent, unpredictable actions – sometimes applied retroactively – that stifle economic vitality at a time when China needs to boost confidence among consumers and businesses.