China cuts income tax burdens on millions of workers

08:31, July 01, 2011      

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China is raising the personal income tax threshold to 3,500 yuan (US$539) from September 1, despite saying earlier that it would stick to a previously proposed 3,000 yuan figure.

The decision by the Standing Committee of the National People's Congress was announced yesterday afternoon after two days of meetings.

Currently, individuals earning less than 2,000 yuan a month don't pay tax. A draft amendment, submitted for its first reading on April 20, proposed raising the threshold to 3,000 yuan.

Public opinion was sought on the draft, and 237,684 opinions and suggestions were received, with 15 percent favoring the 3,000 yuan threshold but 48 percent suggesting it be raised to 5,000 yuan.

The overwhelming view was that the 3,000 yuan exemption was too low to reflect rising cost of living.

As proposed, the lowest tax rate will be cut from 5 percent to 3 percent, and the tax will be levied in seven brackets with 45 percent the top rate.

China currently levies tax on personal income in nine brackets at rates from 5 percent to 45 percent.

"The income tax threshold should be raised to reflect spiraling inflation," said He Gaoning, a Shanghai office worker who earns 25,000 yuan a month before tax. "The higher threshold shows that policy-makers tried to factor in the views of the public though I don't think the 3,500 yuan exemption is a major relief in costly cities like Shanghai," he said.

Under the new system, a taxpayer whose salary is between 8,000 yuan and 12,000 yuan, after deducting social welfare fees, will pay 480 yuan less tax.

Those earning 19,000 yuan will pay 155 yuan less and those earning 30,000 will find just 5 yuan more in their pockets.

People earning more than 38,600 yuan a month will pay more income tax. For example, a 100,000 yuan monthly salary means an extra 1,095 yuan deducted.

The law committee of the NPC said the tax changes were necessary to cut the tax burden for low and medium income earners and let the tax system play a bigger role in the redistribution of wealth.

Shanghai office worker Roman Gu said more should be done to collect tax from the super rich who enjoyed more ways of avoiding tax.

"China's tax regime relies too much on the salary system," said Gu. "It's the salary-earning middle class, rather than the super rich, who are the most hit under the new system."

With wealth being accumulated at an unprecedented pace in China, sources of wealth have become more diversified, with income coming from businesses, sole proprietorships and asset transfers, for example.

Source: Shanghai Daily
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