Personal income tax special deduction plan a welcome move

The Ministry of Finance and State Administration of Taxation released a draft of the personal income tax special deduction plan to solicit public opinion from Oct 20 to Nov 4. The comprehensive and classified combined personal income tax law will take effect since Jan 1, 2019, and could benefit Chinese citizens.

The detailed individual income tax special deduction plan has drawn wide public concern, because it deals with the scale of individual tax reduction, which could affect people’s livelihood – either positively or negatively.

According to the plan, taxpayers that have to pay for their children’s education, self-education or for parental support, or pay housing loan interest or house rent could end up paying lower personal income tax if they report the relevant expenditures to the taxation authorities and get special deductions.

Many experts say personalized taxation system is ideal for a society, for it takes into consideration every individual’s and family’s actual financial condition. But perhaps no country has an ideal taxation system. The best a country can do is to take individuals’ and households’ actual financial situation into consideration.

An ideal personal income tax deduction should also be based on every individual’s actual financial condition. But that is not possible considering the huge number of taxpayers. So the individual income tax special deduction seems the best solution to the problem.

Fair taxation should improve people’s livelihoods. But taxation plays a limited role in solving people’s economic and social problems.

In the draft plan, special deduction for the treatment of a serious disease is stipulated as actual medical expenditure above 15,000 yuan ($2,153) a year — with the maximum deduction quota being 60,000 yuan a year.

The best a country can do is to take individuals’ and households’ actual financial situation into consideration.