Thu, June 30, 2011
Business > Economy > China revises individual income tax law

Record response to tax move

2011-06-01 12:22:11 GMT2011-06-01 20:22:11(Beijing Time)  China Daily

BEIJING - A draft amendment to raise the personal income tax threshold from 2,000 yuan ($306) to 3,000 yuan has drawn a record response after the top legislature published it online to solicit public opinion.

The Standing Committee of the National People's Congress (NPC) put the draft amendment to the Personal Income Tax Law on its website at www.npc.gov.cn on April 25, sparking nearly 240,000 responses.

The number of suggestions received by Tuesday, the deadline for submissions, broke the record set by the draft Labor Contract Law in 2006.

The NPC Standing Committee reviewed the draft amendment for the first time during a bimonthly session that concluded in late April.

The amendment carried the tax proposal by the State Council, or Cabinet. The increased threshold is a bid to boost domestic demand and tackle the widening wealth gap.

The amendment also carried a proposal to cut the number of tax brackets from nine to seven.

If the draft amendment becomes law it will benefit more than 200 million people.

It will also reduce the tax net, with only 12 percent of citizens liable compared to 28 percent currently paying taxes on a monthly taxable income of more than 2,000 yuan.

If the move goes through it will boost the spending power of middle and low-income earners and achieve a more equitable distribution of wealth.

The proposal, however, has prompted a nationwide debate on the tax burden faced by wage earners.

Analysts and economists predicted that the proposal could take effect within the year.

The draft amendment is expected to be sent to the NPC Standing Committee for a second review during its bimonthly session in June.

"Once passed, the suggested changes can be adopted very soon," Chen Sixi, deputy director of the NPC Internal and Judicial Affairs Committee, told China Daily on Tuesday.

However, many people still view the amendment as too conservative, saying their income has been eroded by inflation.

According to an online survey conducted by qq.com, which polled about 2.4 million netizens, more than 77 percent of respondents said the threshold should be raised to at least 5,000 yuan. Nearly 79 percent doubted that the amendment will succeed in narrowing the wealth gap.

Zhang Xianyun, a Duyun resident in Guizhou province, said she won't have to pay income tax if the amendment is passed as her earnings are beneath the proposed threshold.

"But lawmakers need to take into account the cost of living in big cities such as Shanghai and Beijing, which is much higher than here," Zhang, a bank employee, said.

Economists echoed her view.

Li Daokui, an adviser to the People's Bank of China and professor at Tsinghua University, said the current tax system fails to effectively tackle income disparity.

In most countries, the major source of tax revenue stems from high-income earners. But in China, 65 percent of tax revenue comes from wage earners.

Liu Yi, a professor at Peking University's School of Economics, said the draft amendment fails to include so-called gray income, such as stock dividends.

"Gray income is hard to monitor and tax," said Liu, calling for strengthened taxation management.

A survey conducted by NetEase.com among 100 Chinese economists also shows that 70 percent of the respondents believe that the proposed threshold is still "too low".

But Chen, from the NPC, suggested that there was little room to raise the threshold.

"A 12 percent income tax base is low. It's 80-90 percent in most developed countries."

According to the Ministry of Finance, income tax revenue totaled 483.7 billion yuan in 2010, compared to 41.4 billion yuan in 1999.

The revenue accounts for 6.3 percent of the tax haul.

China introduced its individual income tax law in 1980 and raised the threshold to 1,600 yuan a month from 800 yuan in 2006, before increasing it to 2,000 yuan in 2008.

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