Expatriates living on China's mainland will receive amnesty from fines and punishment if they pay tax on under-reported income by the end of June, according to China's top tax authority.

The amnesty signals China's decision to encourage foreigners to clear their outstanding tax liabilities and pave the way for a better environment for taxpayers to comply with Chinese tax laws in the future, taxation officers said.

According to a circular released by the State Administration of Taxation, foreigners will only be charged a 0.05 percent fine on any overdue taxes paid by the end of June.

Overdue taxes paid after June could result in fines of up to five times the tax liability.

"We take the circular as the top tax authority's stance to leave a chance for those expatriates to solve their past delinquent problems and clear the way for a mature tax-paying system," said Joseph Fu, a partner with Ernst & Young.

Tax authorities have also emphasized that trust will normally be given to self-reported cases in order to encourage taxpayers to come forward and benefit from the amnesty, added Desmond Yeung, a partner with Deloitte Touche Tohmatsu.

It is not uncommon for expats to try to pay less tax than they should in China, said Fu.

"All human beings have a tendency to push the tax away from them, especially when they live in an environment where there is not yet matured enforcement," he added.

Fu said that several of his clients have made plans to pay tax on under-reported income since hearing about the new rule.

An unnamed foreigner who has been working in China for over a decade, welcomed the new rule and said he plans to pay his back taxes before the deadline.

(Shanghai Daily March 19, 2004)