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

Experts: Tax threshold must rise

2011-05-26 08:21:48 GMT2011-05-26 16:21:48(Beijing Time)  China Daily

A tax office in Zhengzhou, Henan province. A higher tax threshold will result in a loss of more than 109 billion yuan ($16.8 billion) in government tax revenue, according to a statement from the Ministry of Finance. [Photo / China Daily]

BEIJING - Officials and experts have urged the Chinese government to raise the individual income-tax threshold.

In a survey of 100 officials and economists, conducted by the web portal 163.com, 55 suggested that the threshold should be set at 5,000 yuan ($770), rather than the 3,000 yuan figure proposed in a draft amendment by the State Council.

Wang Tongsan, head of the Institute of Quantitative and Technical Economics at the Chinese Academy of Social Sciences, said that in order to reduce the burden on the low-income group and encourage domestic demand, a higher threshold is needed.

That view won support from an adviser to the People's Bank of China. "The proposed threshold could be raised to 5,000 yuan, especially for high-income regions, such as Shenzhen in Guangdong province," said Li Daokui, who believes that the current individual income tax system will not solve the problem of income disparity.

However, a higher tax threshold would result in a loss of more than 109 billion yuan in government tax revenue, according to a statement from the Ministry of Finance.

The State Council published a draft of tax law reforms on April 25. The government plans to launch a second review of the draft in June, and is likely to introduce a new threshold and tax rates in the second half of this year, according to the State Council.

Ping Xinqiao, a professor at the School of Economics at Peking University, said that a threshold of 3,000 yuan would be "reasonable". "At this figure, less than 20 percent of the working population would pay tax, which is almost the minimum number required to maintain a healthy fiscal system," he said.

There is also a debate on reduction of the number of individual income tax brackets - 39 of those surveyed by 163.com said that the number should be reduced from nine to five, rather than the proposed seven.

A five-bracket system, with a wider range between each bracket, would help to solve wage disparity, according to Jia Kang, head of the Institute of Fiscal Science, a think tank affiliated to the Ministry of Finance.

He also suggested an acceleration in reform of the levy, based on a family's income, rather than individuals, a proposal that has not been included in the published draft.

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