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China: Free mooncakes? Not so fast.

Days before the Mid-Autumn Festival, China is abuzz with talk about how mooncakes are being taxed and regulated.
China mooncakes 2011 09 07Enlarge
A traditional Chinese mooncake on sale in Hong Kong. (Mike Clarke/AFP/Getty Images)

So, first things first.

What's a mooncake?

A mooncake is a Chinese pastry eaten and given as a gift during the Mid-Autumn Festival, which celebrates lunar worship.

The pastry can be round or rectangular, and is usually made up of a thin egg crust and dense filling of lotus seed paste. 

Traditionally, employers have given mooncakes as gifts to clients and employees.

Suffice it to say the gift of a mooncake now comes with strings attached.

According to the Asia Times:

Each Moon Festival, such institutions [like government departments, hospitals and schools] would buy large quantities of moon cakes from their "cooperative" suppliers for distribution to staff as bonus gifts — a traditional way for employers to show they care.

With this year's Mid-Autumn Festival coming up on Sept. 12, the Chinese government sniffs an opportunity.

This year, out of the blue, China's tax authorities have announced that employees receiving moon cakes will have to pay tax, because these bonus gifts are part of their personal income. This has upset the general public and many media commentators who slam the collection of a "moon cake" tax as "unreasonable" or "merciless". On a popular website, over 92% netizens voted against the levy of the "moon cake tax".

The Asia Times reports that the new tax is likely the result of a revised personal income law that took effect Sept. 1.

As a result of the new law:

It is estimated that the government annual revenue from personal income tax will fall by 160 billion yuan. The taxman thus must open his eyes wider to find more tax resources. Bonus moon cakes become easy prey because they are being offered right at the time the new law has come into effect.

http://www.globalpost.com/dispatches/globalpost-blogs/the-rice-bowl/china-mooncakes-tax-economy-mid-autumn-festival