China's legislature Thursday made a decision to raise the cutoff point of the monthly personal income tax from the current 800 yuan to 1,600 yuan, effective from Jan. 1, 2006.
The amount is 100 yuan (one US dollar equals approximately 8.1 RMB yuan) higher than the proposed 1,500 yuan cutoff point in the draft amendments to the personal income tax law, an indication that the law-makers have considered opinions aired at a previous public hearing.
"We learned from this hearing that people hope the cutoff point should be even higher," said Lou Jiwei, vice-minister of Finance.
"But in that case, fiscal revenue would decrease too much and our capability to support the growth of the western regions would be impaired," he said.
According to Lou, more than 50 percent of central finance goes to transfer payments to the relatively backward western regions.
He said raising the cutoff point from 800 yuan to 1,500 yuan will result in more than 23 billion yuan (approximately 2.84 billion US dollars) loss of fiscal revenue each year. Raising the point to 1,600 yuan will incur an additional fiscal loss of more than 5 billion yuan (approximately 617 million dollars) each year.
"After the adjustment of the cutoff point, the number of taxpayers will drop by more than a half, approximately. It will live up to our legislative principle to care for the interests of low and medium-income groups," said Lou.
Adjustment of the cutoff point has been one of the most discussed topics of the general public in recent years.
The current standard of 800 yuan was instituted in 1993, when only around one percent of the employed people earned more than 800 yuan. In 2002, the ratio jumped to around 52 percent.
Draft amendments to the personal income tax law set the cutoff point at 1,500 yuan. The Standing Committee of the National People's Congress (NPC), China's top legislature, decided to put the issue of cutoff point to a public hearing as the adjustment is of widespread concern.
The hearing, held in late-September, is the first legislative hearing ever held by the NPC Standing Committee. The Chinese media touted it as proof of China's determination to advance democracy.