New tax threshold could rise to 3,000 yuan

08:46, March 03, 2011      

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The State Council has proposed to raise the personal income tax threshold and revise tax rates and categories to help low-wage workers combat rising living cost, and also aid domestic expenditure expansion.

The council said yesterday that the proposal will be reviewed by the Standing Committee of the National People's Congress during the upcoming annual session of the legislature which opens Saturday.

There has been debate over the need to increase the amount of salary exempt from tax, and widespread speculation of a new threshold of 3,000 yuan (US$455) from the current 2,000 yuan.

"China's focus on improving people's living standards in the 12th Five-Year Plan and on the fight against inflation both pushed the move," Freeman Bu, an Ernst & Young partner, said yesterday.

"I think a 3,000 yuan exemption is odds-on," said Bu. "A higher exemption may be too much for the government to digest, factoring in the economic development in vast, less developed areas."

Bu said a tax cut would also help boost consumption as families on lower incomes would have more to spend on necessities.

China has long reiterated the need to cut reliance on exports and investments for economic growth and to boost domestic demand as a driver for expansion.

At present, China levies income tax in nine bands with rates ranging from 5 to 45 percent.

China's tax revenue picked up growth in 2010 on rapid economic growth, rising prices, recovery of exports and stricter tax collection.

It collected 7.3 trillion yuan in tax in 2010, up 23 percent from the year before. The economy grew 10.3 percent in 2010.

Last year, personal income tax grew 22.5 percent to 483.7 billion yuan, up 16.4 percentage points than a year ago. Personal income tax accounted for about 6 percent of China's fiscal revenue last year.

People's Daily Online / Shanghai Daily

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