Still no consensus in debate over income-tax threshold

09:23, May 19, 2011      

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The public remains divided over the proper income-tax threshold after a proposed income-tax cut was publicized on April 25.

Few oppose the cut itself or a raising of the threshold, but the debate is centered on whether elevating the threshold to 3,000 yuan (307 U.S. dollars) from 2,000 yuan will achieve the goal of fairer income distribution.

In addition, an amendment to the income-tax law, which was not adopted in its first reading by China's top legislature in late April, seeks to cut the number of tax brackets from nine to seven and also lower tax rates for low- and medium- income groups.

Currently, 28 percent of wage earners pay individual income tax, but if the amendment is passed, that figure would be reduced to 12 percent while government tax revenues would decrease by 120 billion yuan a year.

The government sees the income-tax cut as a way to tackle the wide earnings gap between rich and poor and to produce a fairer income distribution, both of which are seen as high priorities for the country over the next five years.

As of Wednesday, nearly 225,000 recommendations to the amendment have poured onto the National People's Congress' (NPC) website, which is welcoming public feedback on the issue until May 31.

On, a leading twitter-like microblog, a search on the income-tax threshold has received more than 120,000 hits, and a search on the income-tax amendment has accumulated approximately 150,000 results.

Some doubt comes from low-income groups for whom the tax-cut purports to benefit.

Jia Cheng, a Beijing resident, said the 3000-yuan threshold might be too low to exempt most migrant workers on construction sites from income tax, as the minimum salary in Beijing has already been raised to 1,160 yuan.

Many of those interviewed said living costs and high housing prices are eroding their income and want the threshold raised to 4,000 or 5,000 yuan.

China's consumer price index (CPI), a major gauge of inflation, jumped by 5.3 percent in April year on year, which followed a 5.4 percent hike in March, its sharpest rise in nearly three years. Some price officials have warned that the inflation rate may remain high for the second quarter of this year.

But two experts said that calls for a 5,000-yuan or even higher threshold lack statistical support. They also suggest that voices originating from the Internet don't represent the entire working class.

Zhu Qing, a professor with the School of Finance at the Renmin University of China, said the minimum income required to pay income tax usually accounts for 24 to 40 percent of an average monthly salary in developed countries.

Under the draft amendment, however, the proportion in China is 107percent, significantly higher than that in developed countries, he said.

Sun Gang, a finance expert with a research institute of the Finance Ministry, said that the change in threshold should be in line with that of the CPI.

As price levels in China have increased by about 10 to 15 percent from 2008, the new threshold should be at 2,200 yuan, not the proposed 3,000 yuan, Sun said.

Zhu believes the threshold should not be raised further over the proposed 3,000 yuan, but as the calls for a higher threshold on the Internet have become widespread, a 3,300-threshold would also be proper.

Individual income taxes totaled 483.7 billion yuan last year, accounting for 6.3 percent of China's annual total tax revenue.

The country 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.

China began to collect personal income taxes in 1980 with a threshold of 800 yuan, about 20 times the average income for urban workers. This threshold doubled in 2006 and went up again in 2008 to 2000 yuan.

Source: Xinhua
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