National People's Congress (NPC) deputy Dong Mingzhu, president of Guangdong-based Gree Electric Appliances, a leading Chinese air conditioner producer, told reporters Wednesday she would propose raising the current tax free threshold to 5,000 yuan ($732.45) at the ongoing two sessions as a means of improving income inequality and boosting domestic demand.
The Third Session of the 11th NPC is set to open today and run through March 14.
Personal income tax payers now mostly consist of employees with low- to mid-level salaries and wages.
Dong said that is a violation of the principal that taxation should be aimed at redistributing income.
The tax free threshold is not in line with rising living costs, particularly surging housing prices right now, she said.
A higher threshold would raise disposable income, especially for those with low income, and boost domestic demand, Dong said.
The current revised Personal Income Tax Law took effect in March 2008 and sets the tax free threshold at 2,000 yuan ($292.98) in monthly wages. A progressive tax with nine brackets ranging from 5 percent to 45 percent is applied to wages above that level.
The threshold has actually been adjusted several times. Prior to the enaction of the current law, the threshold had been set at 1,600 yuan ($234.39) since 2005.
Dong is not the only advocate of such a move. Zong Qinghou, founder and chairman of Wahaha, a Zhejiang-based beverage giant, and also an NPC deputy, stated Tuesday the rich would show little concern over the threshold being raised from 2,000 yuan to 5,000 yuan, while such a change would make a difference to average wage earners.
Li Shufu, Geely's founder and chairman, and a Chinese People's Political Consulta-tive Conference member, also said Monday in a proposal to finance and tax departments that a higher threshold should be adopted.
He suggested a flexible threshold that would vary across regions within 1,000 yuan ($146.49) of a 5,000 yuan monthly income.
Li also suggested the highest rate applied to taxable salaries and wages should be reduced to 35 percent, and tax payers should be allowed to file taxes based as individuals or households.
Raising the current threshold is must, but a 3,000 yuan ($439.47) threshold is more feasible than 5,000 yuan in the current context, Liu Longheng, director of the Tax Law Research Center at Peking University, and one of the drafters of the country's first law on personal income tax, told the Global Times.
The country's personal income tax needs an overhaul rather than just an adjustment of the tax threshold, Liu said.
A rise in the threshold would not be enough to reduce the gap between the rich and the poor, as the rich would benefit more from the change, he said.
Liu agreed a comprehensive taxation system that allows tax filings by households should be adopted, taking into account people's burdens of life on different levels.