In­come tax re­form needs bet­ter home­work

China Daily (USA) - - VIEWS -

There is no truth in the news that “in­di­vid­u­als whose an­nual in­come is above 120,000 yuan ($17,704) will have to pay higher in­come tax”. Still, it has touched the nerve of many peo­ple in big cities, for they fear they may be forced to pay higher taxes.

Whether peo­ple earn­ing 120,000 yuan a year be­long to the “high-in­come group” or not is de­bat­able. In first- and sec­ond-tier cities such as Bei­jing, Shang­hai, Guangzhou, Shen­zhen, Xi­a­men and Hangzhou, many peo­ple don’t think that earn­ing 120,000 yuan a year makes them part of the high-in­come group.

In 2006, the tax­a­tion au­thor­i­ties an­nounced that in­di­vid­u­als who earn more than 120,000 yuan a year should de­clare their in­comes to the tax­a­tion au­thor­i­ties them­selves to be ap­pro­pri­ately taxed. This de­ci­sion distin­guished the so-called high-in­come group from the rest of the pop­u­la­tion. Com­par­a­tively speak­ing, peo­ple with an an­nual in­come of 120,000 yuan a year or more then ac­counted for a small part of the over­all in­come tax pay­ers, mak­ing them part of the high-in­come group.

But 10 years later how high an in­come is 120,000 yuan a year in a big city? Many peo­ple in big cities have taken very high hous­ing loans be­cause of the sky­rock­et­ing prop­erty prices. And for many, high hous­ing rent ac­counts for al­most a half of their in­come. So if in­di­vid­ual in­come tax is raised, it will un­der­mine the ex­pan­sion of the mid­dle class.

There is no doubt that China’s in­di­vid­ual in­come tax re­quires re­form, but it should be launched af­ter proper re­search.

China’s Gini co­ef­fi­cient has been above 0.4 for a long time, which means the prob­lem of un­fair in­come distri­bu­tion re­mains to be solved. To re­form the in­come distri­bu­tion sys­tem, how­ever, the au­thor­i­ties should im­prove so­cial se­cu­rity and public ser­vices, as in­di­vid­ual in­come tax plays lit­tle role in this process. The ac­cu­mu­lated rev­enue from in­di­vid­ual in­come tax in 2015 was 861.7 bil­lion yuan, but it ac­counted for only 6.9 per­cent of China’s over­all tax rev­enue. This shows rev­enue from in­di­vid­ual in­come tax, which ac­counts for only a small pro­por­tion of the gov­ern­ment’s over­all tax rev­enue, can hardly play a key role in fair in­come re-distri­bu­tion. But it doesn’t mean in­di­vid­ual in­come tax should not be re­formed any fur­ther. In fact, the aim of in­di­vid­ual in­come tax re­form should be to pro­mote in­come fair­ness, for which the tax au­thor­i­ties should es­tab­lish a new in­di­vid­ual in­come tax regime com­bin­ing clas­si­fied and syn­thet­i­cal tax sys­tems. Equal tax should be im­posed on salaries and re­mu­ner­a­tion for per­sonal ser­vices. In ad­di­tion, the ex­ist­ing uni­fied ex­emp­tion of 3,500 yuan for in­di­vid­ual in­come tax pay­ers should be changed. In­come tax ex­emp­tion stan­dard should be granted af­ter tak­ing into con­sid­er­a­tion some ac­tual liv­ing ex­penses such as sup­port­ing se­nior cit­i­zens in the fam­ily, rais­ing chil­dren and pay­ing for their ed­u­ca­tion, and fam­ily med­i­cal ex­penses. The au­thor is a re­searcher at the Na­tional Academy of Eco­nomic Strat­egy, Chi­nese Academy of So­cial Sci­ences.


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