Top Legislature Reviewing Income Tax Draft

A draft to raise the threshold of the income tax is being reviewed by China's top legislature. The change is expected to trim the income tax burden of about 90 percent of wage earners in China. Our reporter, Wang Jing, has more.

The draft proposes to boost the minimum exemption threshold by 50 percent to 3,000 yuan or about $460 US dollars per month. Finance Minister Xie Xuren explains.

"This is to lower the tax burden of low-and-middle-income people and strengthen tax adjustment to high-income earners.Considering increased expenditures of daily necessities, it is necessary to amend the current income tax."

This is the third time the income tax has been subjected to change within five years. The first amendment was made in 2006 when the minimum exemption threshold doubled to 1,600 yuan and the threshold was raised by another one quarter in the second amendment two years later.

Under the new draft, urban income earners, who gross 4,500 yuan a month, will see their tax bill fall to 75 yuan a month from 175 yuan currently, or an effective annual rate of 1.7%.

Professor Zhu Qing is from Renmin University.

"The reduction of income tax is to increase the proportion that individual income takes in the national income. This is against the backdrop of an income distribution reform currently underway, which is expected to increase people's disposable incomes to boost spending, investments and exports."

The government revenue from personal income tax stood at 480 billion yuan last year. The new amendment is expected to cut that by a quarter.

The draft slashes the number of tax brackets from 9 to 7. The current rates of 15 percent and 40 percent are called off while the coverage of both low rates of 5 percent and high rates of 45 percent have been extended.

Jia Kang is the director of the Institute of Research at the Ministry of Finance.

"The income tax is designed to be both a source of government income and a way to reduce income disparities. Therefore, along with raising the minimum exemption threshold, the new changes include hiking taxes for high-income groups. Those who were subjected to the rate of 40 percent are now in the category of 45 percent. The policy is designed to impact tax high-income people."

The draft needs another reading at the end of June before it would get final approval.

For CRI, I'm Wang Jing.