Expert proposes tax law amendments for benefit of middle-income earners

14:59, June 25, 2011      

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China's individual income tax system should be amended to reduce tax burdens for the country's middle-income earners, a senior expert in finance and economics said.

Jia Kang, head of the Research Institute for Fiscal Science of the Ministry of Finance, made the remarks during an exclusive interview with Xinhua.

The Chinese public is currently debating how amendments to the individual income tax law can be more fair among different groups with different incomes.

Chinese legislators began discussing a draft amendment to the individual income tax law in April. The draft would raise the threshold for levying personal income taxes to 3,000 yuan (464 U.S. dollars) per month from the present 2,000 yuan per month. Public suggestions and opinions on the proposal were solicited from April 25 to May 31.

The results of the solicitation were published last week. Of the more than 80,000 citizens who commented on the proposal, only 15 percent of them favored raising the tax exemption to 3,000 yuan. Thirty-five percent were against it and 48 percent suggested raising the exemption to 5,000 yuan per month.

"The initial proposal would offer tax relief to low-income people while elevating taxes for high-income earners, but there is still room for improvement," Jia said.

Currently, China implements a nine-bracket taxing mechanism on salaried incomes. Taxes are calculated after subtracting the exemption amount, with each bracket carrying different tax rates, ranging from 5 percent to 45 percent. Rates move up as tax-payable income increases. The original draft amendment suggested cutting the number of tax brackets from nine to seven.

Jia suggested removing the 20-percent rate and keeping the 15-percent rate. His suggestion would mean that those with monthly pre-tax incomes between 7,500 yuan and 12,000 yuan would benefit from smaller taxes.

He also suggested that the individual income tax threshold should be readjusted every three years according to changes in consumer prices.

Jia's comments come as debates over the country's taxation system continue to rage between both ordinary citizens and prominent economists.

Some people have proposed that there should be different exemption thresholds, which could be tied to local individual income levels.

Li Daokui, a member of the monetary policy committee of the People's Bank of China, suggested that provinces, autonomous regions and municipalities should have the option to apply for different tax exemptions.

However, Jia said that since the whole country is essentially a unified market,it could be difficult to create different regulations concerning individual income taxes, as this could affect the free flow of labor.

Some netizens have warned that this may cause workers to favor more developed eastern regions, thus affecting development in central and western regions.

Jia also suggested that tax authorities should increase their monitoring of tax evasion by those who obtain extra income apart from their normal salary payments. He said the additional income should be subject to taxation as well.

The draft amendment to the individual income tax law will undergo a second review in late June by the Standing Committee of the National People's Congress, the country's top legislative body.

Source: Xinhua
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