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BIZCHINA / Review & Analysis |
A popular tax cut(China Daily)
Updated: 2007-12-31 09:44 The adoption of a law amendment to raise the country's individual income tax threshold from 1,600 yuan ($218) a month to 2,000 yuan is welcome. It will cut individual income tax payment by 30 billion yuan a year to relieve the economic burden on income earners. Such a tax cut is more than needed when the tide of soaring prices is lapping closer to medium and low-income families. However, more important than the actual sum of tax reduction is the useful public debates that it has triggered about further taxation reforms. One topic for public discussion is the need to institutionalize tax cuts in line with the level of inflation. The personal income tax deduction criterion had been left unchanged at 800 yuan a month for more than two decades until it was doubled at the beginning of 2006. Now, two years later, it has been raised again. In an explanation to the country's top legislature, the Finance Minister attributed the prompt adjustment to the fact that over the past two years, a citizen's consumption expenditure for basic living had further increased. This is a good argument pertinent to reality. For instance, the country's consumer price index has hovered above 6 percent year-on-year for four months since August. More and more income earners have increasingly felt the pinch of price hikes. While applauding the latest tax cut, the public naturally expects more such timely adjustments as inflationary expectation remains high. Some people have thus argued that the new threshold is still not high enough in view of the likely rise of living costs in a few years. Another public debate the current tax cut caused is about the urgency to replace individuals with families as the taxation base. It has become all too clear that to bring into full play the distributional role of personal income tax for equity, the various basic needs of different families should be factored in the calculation of the amount of tax income earners should pay. Such a taxation reform will incur an extra dent in the personal income tax revenue. But it is much more affordable and practical when the national coffer is swelling. To meet people's expectations, legislators should seize the chance to press ahead with crucial taxation reforms.
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