2011-08-23 09:23

Zhao Hengming, who works half-days at a machinery factory, sets out every afternoon for nearby markets in Nanjing, Jiangsu province. He usually compares prices at several markets to be sure he gets the best bargain. [Photo / China Daily]

Zhao Hengming, who works in a Nanjing factory, is a frugal man. He welcomes changes to the income tax that will put more money in his pocket, but the way he manages his money will remain unchanged.

A monthly income of about 4,500 yuan ($704) is enough to support his wife and son - and allow him to put away 2,500 yuan every month.

The State Council in April proposed raising the income tax threshold from 2,000 yuan to 3,000 yuan in a bid to boost consumer spending and ease the tax burden on low-wage earners. In June it decided to raise the proposed threshold to 3,500 yuan a month.

It also reduced the tax rate for the lowest income earners from 5 percent to 3 percent.

The adjustment takes effect on Sept 1 and will cut the number of taxpayers from 84 million to 24 million.

The government expects to take in 160 billion yuan less in income tax annually.

"Under the new amendment, about 7.7 percent of wage earners will have to pay tax, down from the current 28 percent," said Zhang Bin, a professor at the Institute of Finance and Trade Economics, Chinese Academy of Social Sciences.

Zhang said income taxes are designed to narrow wealth gaps but that in reality, middle- and low-income earners feel the impact of taxes more than higher earners. He said the tax threshold needed to be raised to make it fairer.

China introduced the personal income tax in 1980, requiring payment by everyone earning at least 800 yuan a month. The threshold was raised to 1,600 yuan in 2006 and to 2,000 yuan in 2008.

Part of the State Council's goal, an increase in consumer spending, has already occurred. According to the National Bureau of Statistics, retail sales in the first six months of this year reached 8.58 trillion yuan, up 16.8 percent from last year.

But inflation has increased, too. The bureau reported this month that the country's Consumer Price Index, a main gauge of inflation, hit 6.5 percent in July, up from 3.3 percent a year earlier and from a three-year high of 6.4 percent in June.

Since most people's wages have not increased accordingly, "the tax policy will have certain limited effects on a few people, but won't change the lives of residents tremendously," Zhang said.