China currently uses a nine-bracket progressive rating system, and the draft will eliminate the 15 and 40 percent tax rates.
According to the draft, the minimum tax rate of 5 percent will be applied to those whose monthly salaries range from 3,000 to 4,500 yuan, compared to the current 2,000 to 2,500 yuan. Also, the peak rate of 45 percent will apply to those who make more than 80,000 yuan per month, instead of the current 102,000 yuan.
The new tax rate system means lower taxes for those who earn less than roughly 20,000 yuan a month and higher taxes for those who make more than the figure, experts said.
This was criticized by white collar workers as a monthly salary of 20,000 yuan is no longer considered a high income in big cities like Beijing, Shanghai and Shenzhen, particularly on the backdrop of high housing prices. Prices of newly-built apartments within Beijing's fourth-ring road, the urban center, are at about 35,000 yuan per square meter.
For white collar workers, the government should further reduce taxes in a bid to expand the middle class group, said Guo Shiping, a researcher at the School of Economics at Shenzhen University.
The call came as China's total tax revenue surged 22.6 percent in 2010 and soared 32.4 percent in the first quarter of 2011, two or three times the gross domestic product growth.
The amendment is estimated to cut the country's personal income tax revenue by about 120 billion yuan in comparison to last year's figure, according to Finance Minister Xie Xuren.
The reduction will have very limited impact on China's fiscal revenue, UBS Securities economists said in a note. Personal income taxes totaled 483.7 billion yuan in 2010, accounting for only 6.6 percent of the country's tax revenues, data showed.
Many experts suggested the income tax be based on family incomes, rather than personal incomes, to better reflect family burdens and also urged stricter supervision over high-income earners and those with multiple income channels.
However, Li Tiegang, deputy dean of the School of Economics at Shandong University, said the tax regime based upon family incomes would be costly and hard to carry out, as China now has no platform to collect family income data.
"The draft amendment is a first step in the right direction," Li said. "It, however, should be adjusted and improved after being implemented."