A proposal to raise personal income tax exemption threshold from
800 yuan (US$98.9) to 1,500 yuan (US$185.3) was announced during
the 17th Session of the Standing Committee of the 10th National
People's Congress (NPC) that sat from August 23 to 28. While the
proposals have been welcomed, many still believe that more
adjustment is needed.
The long-awaited adjustment has been praised by Chinese
taxpayers, but many of them feel that it is still not enough.
The NPC Standing Committee is organizing a first-ever public
hearing on the issue, but only 15 to 20 representatives will be
selected to voice their opinions and a further 15 to 20
representatives will sit in on the hearing.
Suggestions raised in the hearing will be vital to the final
decision. If representatives reach a consensus on the proposed
1,500 yuan (US$185.3) tax exemption threshold, the draft amendment
will be reviewed for the second time at the 18th Session of the
Standing Committee in October and will most likely be passed, with
possible implementation on January 1, 2006, analysts said.
Statistics from the State Administration of Taxation (SAT) show
that revenue from personal income tax hit 173.71 billion yuan
(US$21.47 billion) in 2004, about 6.75 percent of the country's
total, and remained the fourth largest source of revenue after
added-value tax, enterprise income tax and sales tax.
The growth of personal income tax revenue
(source: SAT)
| Year |
Revenue
,00 million |
Total
,00 million |
Proportion |
| 1994 |
72.7 |
5070.8 |
1.43% |
| 1995 |
131.5 |
5973.7 |
2.2% |
| 1996 |
193.2 |
7050.6 |
2.74% |
| 1997 |
259.9 |
8225.5 |
3.16% |
| 1998 |
338.6 |
9093.0 |
3.72% |
| 1999 |
414.3 |
10315.0 |
4.01% |
| 2000 |
660.4 |
12665.8 |
5.21% |
| 2001 |
996.0 |
15165.5 |
6.56% |
| 2002 |
1211.1 |
16996.6 |
7.12% |
| 2003 |
1417.3 |
20466.1 |
6.92% |
| 2004 |
1737.1 |
25718.0 |
6.75% |
About 65 percent of personal income tax revenue generated in 2004
came from salaried workers. SAT head Xie Xuren revealed this at a
press conference in March. The current taxation system has
therefore been criticized for increasing the divide between the
country's rich and poor.
Current laws stipulate that employers are to deduct personal
income tax payable directly from staff salaries and hand them to
local taxation bureaus. But private businesspersons and freelancers
are asked to report revenues and hand in personal income tax
voluntarily.
Tax deduction rates (on monthly salary)
(Note: the exemption threshold is 800 yuan for Chinese
and 4,000 yuan for foreigners)
Revenue excluding exemption threshold
|
Tax rate
|
| Below 500 yuan |
5% |
| 500---2,000 yuan |
10% |
| 2,000---5,000 yuan |
15% |
| 5,000---20,000 yuan |
20% |
| 20,000---40,000 yuan |
25% |
| 40,000---60,000 yuan |
30% |
| 60,000---80,000 yuan |
35% |
| 80,000---100,000 yuan |
40% |
| Above 100,000 yuan |
45% |
"Employees with monthly salaries above 800 yuan (US$98.9) were
about 1 percent of the total employed population in 1993, but the
proportion rose to 52 percent in 2002, while the consumer price
index in 2003 grew 60 percent over the year," Finance Minister Jin
Renqing said at the 17th Session.
Comparatively, the statistics from National Bureau of Statistics
show that the average monthly expenditure of an urban worker in
2004 was 1,143 yuan (US$141.3), much higher than the current
exemption threshold.
Although the nominal 800 yuan (US$98.9) exemption threshold
hasn't changed since it was first set in the 1980s, local
governments have the authority to decide what items are tax
deductible according to actual conditions.
Tax exemption thresholds nationwide
| City |
Province |
Exemption Threshold |
| Guangzhou |
Guangdong |
1,600 yuan |
| Shenzhen |
Guangdong |
1,700 yuan |
| Zhuhai |
Guangdong |
1,400 yuan |
| Beijing |
Beijing |
1,200 yuan |
| Shanghai |
Shanghai |
1,400 yuan |
| Hangzhou |
Zhejiang |
1,200 yuan |
| Nanjing |
Jiangsu |
1,200 yuan |
| Xiamen |
Fujian |
1,500 yuan |
| Fuzhou |
Fujian |
1,100 yuan |
Per capita income in key provinces (municipalities) in
2004
| Province |
Per capita income |
| Guangdong |
13,628 yuan |
| Beijing |
15,638 yuan |
| Shanghai |
16,683 yuan |
| Zhejiang |
14,546 yuan |
| Jiangsu |
10,482 yuan |
| Fujian |
11,175 yuan |
"It's better to fix the personal income tax exemption for
monthly salary at 2,000 yuan (US$247.2) and the threshold should be
raised every five years in order to suit socio-economic changes,"
said Yang Qin, a sales manager of China Netcom Foshan Branch,
Guangdong Province.
Yang Qin, probably the only one representative in the province
selected to attend the upcoming public hearing, began to solicit
public opinion through Nanfang Metropolitan Daily on
September 19.
He also suggested that certain tax-free items should be
retained, to be adjusted region to region. For example, funds
for housing, medicare, pension and unemployment insurance.
In Chengdu, southwest China's Sichuan Province, two
representatives who will be attending the September 27 hearing, a
lawyer and a doctor, also discussed the issue with local citizens
through the news hotline of Chengdu Economic Daily on
September 15.
Li Lin, a doctor with the Sichuan Provincial Center for Disease
Control and Prevention, surveyed 90 citizens at random on the
streets of Chengdu City, and found that the majority preferred the
2,000 yuan threshold.
Many members of the NPC Standing Committee, in fact, disagreed
with the 1,500 yuan threshold at a group discussion of the 17th
Session, a memorandum released on the NPC website reveals.
"It is said that raising the tax exemption threshold will cause a
drop in revenue by over 20 billion yuan (US$2.47 billion). However,
it only accounts for 1 percent of the country's total tax revenue.
It is a rather small figure and can be made up through strict
collection on high-income groups," Li Lianning, a member of the
Standing Committee, explaining the feasibility of higher exemption
threshold.
(China.org.cn by Tang Fuchun, September 26, 2005)