Rise in pay sparks income tax review
By Zhao Huanxin (China Daily)
Updated: 2005-08-24 05:45

China's top legislature is looking at cutting income tax for average wage earners and ensuring high earners pay their due.

Proposals put forward suggest raising the level at which people start paying income tax from the current 800 yuan (US$99) per month to 1,500 yuan (US$185), as well as tackling evasion by high-earners.

The draft amendment was reported by Minister of Finance Jin Renqing to the Standing Committee of the 10th National People's Congress (NPC), China's top legislature, which convened its 17th session yesterday in Beijing.

The Standing Committee usually meets every two months, its functions include enacting and amending laws.

Minister Jin said the incumbent law, revised in 1993, needed to be further amended to adapt to new situations.

"Considering conditions are not yet mature to overhaul the statute, (the State Council) proposes to first address the two problems that are of primary concern."

The main concerns the draft amendment seeks to address include the relatively heavy levy on middle and low-income workers, and the perceived low rate of tax paid by high-earners, the minister said.

Under the current law, workers start paying tax on earnings over 800 yuan per month. Tax rates range from 5 per cent in the lowest band to 45 per cent in the top bracket, which covers those earning around 100,000 yuan (US$12,048) or more per month.

The current tax levels were set in 1993 when only 1 per cent of the nation's wage-earners made more than 800 yuan a month, the NPC Financial and Economic Committee said.

However, per capita consumption by urban employees hit 1,143 yuan (US$138) a month in 2004, well above the taxable threshold, according to statistics from the State Administration of Taxation.

Expenditure is expected to surge even higher this year, the NPC committee said.

In light of this increase in average spending, the threshold should be increased from the current 800 yuan to 1,500 yuan, Jin said.

Experts say the changes also seek to unify personal tax collection practice, since two-thirds of the country's provinces and municipalities have already raised the threshold above 800 yuan in recent years.

While the rising threshold is expected to lower the tax burden on the majority, the draft amendment also seeks to tackle high earners and close tax evasion loopholes.

To strengthen tax collection on high-income residents, the proposed legislation said high earners, whose income surpasses "a certain amount," will be required to file returns and pay taxes of their own accord.

The draft amendment does not specify the "certain amount," handing responsibility for setting the figure to the State Council.

Jin said the Personal Income Tax Law has contributed significantly to regulating income allocation and increasing the country's tax revenues.

To give the public a chance to air their views on the proposals, a public hearing is to be held in the coming weeks, NPC sources said.

The Standing Committee will discuss and debate the draft today.

(China Daily 08/24/2005 page1)