Less Is More
New tax benefits are in the pipeline to lessen households’ financial burden
After their personal income tax threshold was raised from 3,500 yuan ($500) to 5,000 yuan ($720) as of October 1, Chinese taxpayers’ burdens will be further reduced with details of new deductible items clarified.
According to the Individual Income Tax Law amended on August 31, taxable incomes will have special deductions for children’s education, continuing education, treatment for serious diseases, caring for the elderly, as well as housing loan interests and rents. On October 20, authorities unveiled draft temporary measures on these deductions for public feedback for two weeks.
The final rules for special deductions will go into effect as of January 1, 2019.
Education expenses
The deduction for children’s education will cover both pre-school education, starting with 3-year-olds, and academic education starting from primary school to doctoral programs. The amount will be 12,000 yuan ($1,730) annually for each child from the parents’ taxable income.
Gan Li, head of the Research Institute of Economics and Management of the Southwestern University of Finance and Economics, told Xinhua News Agency that the 12,000-yuan deduction can largely cover average children’s expenditures for different educational stages throughout the country. It is equivalent to two months’ average wage of an urban employee.
“Deductions based on a universal and fixed sum for different regions and different educational stages will help simplify the tax structure, reduce taxation costs and prevent fraud,” Gan said.
For continuing education, 4,800 yuan ($690) for academic studies or 3,600 yuan ($518) for professional qualification or certificate training will be deducted annually for each taxpayer.
Xu Jianguo, a professor at the School of Public Finance and Taxation at the Zhongnan University of Economics and Law, told Xinhua that the different deductions take into consideration that fees for continuing academic education, especially on-the-job postgraduate education, are generally higher than those for non-academic education.
Recreational training courses such as painting or sports are not included in the deductible items because they are not deemed closely related to professional skills.
Medical costs
In terms of medical costs for serious diseases within any tax year, money paid by each patient above 15,000 yuan ($2,160) in the medical insurance system will be deducted up to the annual cap of 60,000 yuan ($8,640).
Since a unified medical insurance program covering both urban and rural areas has been established in China, only a small percentage of the medical bills are paid by patients themselves. Therefore the annual cap of 60,000 yuan is estimated to be able to cover most of the expenditures incurred for serious illnesses.
Sun Gang, a research fellow with the Chinese Academy of Fiscal Science, said that according to the World Health Organization, when a family’s medical expenditure is above 40 percent of its total expenses, it is defined as disastrous medical expenditure. Calculated by this standard, the disastrous medical expenditure for average Chinese families is about 16,000 yuan ($2,296). Considering the incomes and the risk-tolerant capacity of different taxpayers, it is reasonable to set the deduction threshold for medical costs at 15,000 yuan.