CHINA is proposing to raise its monthly individual income tax levy threshold from the current 1,600 yuan (US$217.69) to 2,000 yuan, according to a draft amendment to the law on individual income tax.
The threshold increase is to help medium- and low-income earners hit by the recent price increases of some goods.
Yesterday, the draft amendment was submitted to the Standing Committee of the National People's Congress, China's top legislature, for deliberation. The amendment is expected to take effect from March 1.
Finance Minister Xie Xuren told the legislative session that "raising the threshold of individual income tax collection from 1,600 yuan to 2,000 yuan means a reduction of 30 billion yuan in state revenue."
The rise in the threshold would free 70 percent of income earners from paying income tax. The current threshold of 1,600 yuan exempts 50 percent of income earners from tax.
Xie said: "The increase of individual income tax collection threshold is within the country's financial bearing capacity and aims to relieve the economic burden of medium- and low-income earners."
China's consumer price index climbed 6.9 percent in November, the fourth consecutive month the index had been above six percent.
The individual income tax cutoff point was raised from 800 yuan a month to 1,600 yuan in 2006. This was based on a typical citizen's basic living costs.
"Over the past two years, a citizen's consumption expenditure for basic living further increased. This required us to readjust the individual income tax starting point again," Xie said.
He predicted that every income earner would bear an annual expenditure of as much as 19,030 yuan, or 1,586 yuan per month, for a family's food, clothing, accommodation and transport. The trend was for further increases in expenditure, therefore the individual income tax cutoff point was adjusted to 2,000 yuan a month.
A recent survey of 3,698 people showed that 97 percent said the current individual income tax cutoff point should be readjusted.
Wang Yijiang, an economic management professor at the Beijing-based Tsinghua University, said that the country's fast economic development meant the government could afford the tax cut.
The Ministry of Finance predicted the country's financial revenue in 2007 would exceed 5 trillion yuan, up 31 percent from the previous year.
Wang believed the increase in the threshold would help narrow the gap between rich and poor.
China is implementing a national individual income tax threshold. Some academics believe there should be different tax thresholds in different regions.
They said the cost of living in cities such as Shanghai, Beijing and Guangzhou was high and the tax threshold should be higher.
Xinhua 2007-12-24