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Urban income up 6.3%

By Wang Xu (China Daily)
Updated: 2008-07-26 09:37

The average income of urban residents in China rose by 6.3 percent in the first half, much slower than the government's ballooning tax growth, echoing experts' advocacy for a fresh cut in personal income tax.

The per capita income of urban residents was up 14.4 percent to 8,065 yuan ($1,182) in the first half. But the growth shrunk to a mere 6.3 percent, after the figures were adjusted for inflation. In the meantime, the government's tax revenue grew 30.5 percent year-on-year to 3.26 trillion yuan, thanks to the 10.3 percent growth in the economy over the period.

"It would be better if the income growth could keep in line with the economic expansion," said Jia Kang, director of the Research Institute for Fiscal Science under the Ministry of Finance. "There is a need to cut taxes to increase the income of local residents and the government could afford to do so with its growing financial muscle."

The real income growth of local residents has lagged behind the nation's booming economy over the years, although the nation has spawned a breed of millionaires. The recent high-flying inflation is exacerbating the burden on the average wage earners, especially the urban poor that earmark a significant proportion of their income on foods and daily necessities.

The government should raise the threshold of persoanl income tax and reduce interest tax on savings deposits, the Financial and Economic Affairs Committee of the National People's Congress proposed in a report on Wednesday. According to the committee, the move could, besides guaranteeing the basic living standards of the poor, could also give a boost to domestic consumption and help offset the impact of a weakening export market.

China raised the threshold of personal income tax from 1,600 yuan per month to 2,000 yuan in March. The change is said to reduce government revenue by 30 billion yuan a year, according to official statistics.

Yet, the nation's total personal income tax expanded 27.3 percent year-on-year in the first half, rather than taking a dive after the tax cut.

"The faster tax growth means income tax has played its role in adjusting the income disparity," said Jia. "Now the key issue is to strengthen the levy on high-income groups that have more resources for tax evasion."

Zong Qinghou, founder and chairman of Chinese beverage maker Wahaha Group, was investigated by the local authorities for accusation of tax evasion in April.