Economy

China seeks feedback on proposed tax threshold changes

(Xinhua)
Updated: 2011-04-26 16:56

BEIJING - China's top legislature has started seeking public feedback on a draft amendment to increase the minimum threshold for personal income tax from 2,000 yuan ($306) per month to 3,000 yuan.

The Standing Committee of the National People's Congress (NPC) published on Monday the draft amendment to the Personal Income Tax (PIT) Law on its official website, www.npc.gov.cn, calling for public submissions. The deadline for submissions is May 31.

During a bimonthly session which concluded Friday, the NPC Standing Committee examined the draft amendment for the first time.

The draft amendment, featuring a minimum tax threshold hike, is among China's latest efforts to improve the living standards of the country's medium and low income earners, which is a major goal in China's development blueprint for the 12th Five Year period (2011-2015).

According to a NPC statement posted online Monday, the move also aims to achieve fairer redistribution of income.

China currently uses a nine-bracket progressive rating system, which applies a minimum tax rate of 5 percent for those who earn between 2,000 to 2,500 yuan, and a maximum rate of 45 percent for those whose earnings exceed 102,000 yuan a month.

But according to the draft, the minimum tax rate of 5 percent will be applied to those whose monthly salary ranges from 3,000 yuan to 4,500 yuan and the peak rate to those who make more than 82,000 a month.

The draft shows the government's resolution to address people's two major concerns, namely inflation and the widening income gap, said Gao Peiyong, a researcher with the Chinese Academy of Social Sciences.

China's consumer price index (CPI), a major gauge of inflation, jumped 5.4 percent in March year on year, its sharpest rise in nearly three years. And some price officials have warned that China's inflation rate may remain high for the second quarter of this year.

Also, China's government has recognized that it must urgently tackle the income gap between the rich and poor.

Liu Huan, a taxation expert with the Central University of Finance and Economics, said raising the personal income tax threshold will boost the purchasing power of low-income groups amid soaring prices.

He Guoyang, 26, a farmer-turned worker in Dongguan City in south China, is happy about the proposed tax law changes.

"It means a big bowl of beef noodles can be saved for me," he said, when asked to explain what changes the amendment will bring to his daily life. He currently pays 25 yuan in personal income tax each month from his monthly salary of 2,500 yuan. If the draft amendment is adopted, he will not have to pay any tax.

Liu said the personal income tax threshold hike is "good news for most people."

"Because the current 2,000-yuan personal income tax threshold is already lower than average living costs in big cities such as Shanghai and Beijing," Liu said.

More than 200 million people, who belong to the working class in China, will benefit from the lifting of the minimum PIT threshold, said Sun Qunyi, secretary general of the labor and wage committee under the China Association for Labor Studies, a non-profit academic institution.

If the personal income tax threshold is lifted, only about 12 percent of the working class will have to pay taxes, down from the current 28 percent, according to officials.

The draft amendment is estimated to cut the country's tax revenue by a total of 120 billion yuan a year, compared to 2010, they say.

China's personal income taxes totaled 483.7 billion yuan last year, accounting for 6.3 percent of the country's annual total tax revenue, according to official figures.

There are also some experts who suggest the proposed tax threshold should be further lifted to as high as 5,000 yuan, a proposal opposed by others.

"It is not the case that the higher personal income tax threshold the better," said Jia Kang, head of the Research Institute for Fiscal Science of the Ministry of Finance.

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"If the threshold is 5,000 yuan, then only less than 10 percent of the working class will need to pay personal income tax," Jia said.

Also, under the draft amendment, the peak PIT rate of 45 percent will apply to those who earn a monthly salary higher than 82,000 yuan, down from the current 102,000 yuan.

"It delivers a clearer signal that the Chinese government is working to achieve fairer re-distribution of income among different groups," Jia said.

In a related development, the State Administration of Taxation (SAT) has ordered local bureaus to plug loopholes in the country's collecting of personal income taxes from high-income earners by strengthening coordination with other departments.

Income from the transfer of equity and houses, derived from auctions, interest returns, stock dividends and bonuses would become the main targets of taxation improvements, the administration said in a statement posted online on April 17.