Government Reduces Personal Income Tax
The standing committee of China's National People's Congress, China's highest legislative body, passed on August 31 the latest revision to the Personal Income Tax Law which raises the lowest tax base for monthly taxable income from 3,500 yuan (US$511) to 5,000 yuan (US$730) as of October 1.
It is believed to be a positive response to the public's long-term demands to reduce personal income tax, as the average monthly wage in many cities, especially large cities, has increased far beyond the current lowest tax band which was set years ago.
The new revision also expands the range of taxable salaries that apply to the lowest three tax bands (there are altogether seven bands for different wage ranges), to enable more individuals to be in a lower tax band. Meanwhile, a taxpayer's expenditure on children's education, support for seniors and mortgage payments – described as “special expenditure” in the revised law – will also be deductable from salaries in a way yet to be determined by the State Council.
Low- and middle-income earners will benefit most. It is estimated that those who earn from 5,000-20,000 yuan (US$730-2,920) will pay more than 50 percent less income tax after October 1, and those who earn between 20,00080,000 yuan (US$2,920-11,680) will pay 10-50 percent less. The State Administration of Taxation also pledged that the additional deductions will be implemented from January 1, 2019.
This is the fourth time China has raised the tax base limit. The last time was in 2011, when the tax base was raised from 2,000 yuan (US$292) to 3,500 yuan (US$511). Before the latest revision was published, many people appealed for an even higher base level, but Cheng Lihua, the deputy financial minister, claimed at a press conference that the new lowest tax band matches the current consumption level of urban residents, and they plan to dynamically adjust the base rate based on urban residents' consumption and expenditure.
Impacted by slowing economic growth, the growth in urban residents' disposable income in the first half of 2018, according to the National Bureau of Statistics, dropped by 0.7 percent compared to that of the same period of 2017, accompanied by a drop in slowed consumption, so it is expected that the tax cuts will spur consumption. Analysts said that the amount people will feel able to up their consumption spending largely depends on how the government will deduct the “special expenditure” from taxable salaries and on other relevant policies.