Taxpayers' legitimate worries on law revision

08:22, May 18, 2011      

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It surely makes economic sense that the central government in Beijing intends to give tens of millions of Chinese wage-earners tax relief, to help them better cope with the rising prices and elevated living costs, and stimulate more private consumption at a time when economists are warning growing risks of stagnation.

Because the basic criteria of impartialness and equality – or building up a harmonious society with Chinese characteristics -- are at stake, the tax-writing authorities and the law-makers are entrusted to choreograph the best possible new codes for taxation. An amendment of the current Personal Income Law won't be easily made. Only it is able to garner a landslide support of the public, it could be considered a success.

One fundamental guide for the new code is to nurture and strengthen, financially, a rapid expansion and rise of the middle class in the country. In any society, capitalist like the developed states or socialist like China's, the larger the middle class group, the closer the social cohesiveness, and more stable the society.

Therefore, nearly all reasonable governments have made strenuous efforts – in disregard of the opposition of the super wealthy -- trying to bestow more benefits to the middle class by slashing tax rates on them.

In the backdrop of the fragmented tax system reform in the world's largest economy, the United States, China needs to learn lessons. To date, the Obama administration has failed to persuade his Republican Party opponents to impose a higher levy on wealthy Americans, including a single making $200,000 or a couple making $250,000 a year. The result is the U.S. Federal debts has ballooned to $14.29 trillion while American government spending keeps going up – causing enormous fiscal hazard for itself and the global economy.

To sum up, China's new tax law should exempt levy on the low bread-earners, give a bigger relief to the middle income workers, while levy heavily on the wealthy up class. The urban couples who make up to one million yuan a year are obligated – and also legally requested -- to hand in more taxes. At the same time, tax dodging by the tycoons – including moving their capital accounts to the so-called “tax safe havens” must be investigated and stopped.

The original personal income tax proposal, submitted by the State Council, was to increase the income tax threshold from 2,000 yuan to 3,000 yuan per month and to reduce the number of income tax brackets from previous nine to seven. Once the draft was made public, it immediately caused a fireball of debating, because it concerns everybody so dearly.

The NPC office said that it has collected more than 200,000 pieces of opinion – a record – since it put the draft online and solicited public comments. The responses are so overwhelming that some media in China brand it as a progress on open and democratic lawmaking in the country. However, it is better for the public to keep cool-headed as some have already warned of the lobbyists – surrogates of the rich -- moving to impact the outcome of the legislation.

According to online surveys, the majority of Chinese agree to raise the threshold for taxable income to 4,000 or 5,000 yuan per month, to make the low and middle income earners have more in their pockets to tackle the rising cost of living. Also, the first-bracket tax rates on those earning more than 4,000 yuan but less than 20,000 yuan should be lowered. These are good and sensible suggestions.

It is understandable for many of the wage-earners to be anxious as they anticipate a quick law-drafting and approving procedure. An endorsement of the tax reduction bill by the NPC Standing Committee at the earliest possible date will enable them to reap policy dividends.

Now it is nearly two months since Premier Wen Jiabao broke the news that the government was to cut tax for them. The law writers and the lawmakers should avoid foot-dragging and try to follow a neat timeline of legislation.

By Li Hong, People's Daily Online
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