A recent survey shows that 76.4 percent of consumers favor a personal income tax rebate at the year-end and 90.8 percent said a rebate would encourage them to spend more. Over 68 percent of consumers favor variable income tax thresholds set in line with the local cost of living indices.

In collaboration with Beijing ePanel market research company, the China Youth Daily Social Survey Center polled 2,451 consumers in 31 provinces.

Chen Hua works for a state-owned company in Beijing. His salary is 4153 yuan per month after deduction of just over 100 yuan income tax. "As a new graduate, I am happy with my salary. But my monthly budget is tight." Chen saves 1200 yuan a month after paying rent (1200 yuan), food and travel (800 yuan) and others expenses (800 yuan). "But there are always unexpected outlays. I bought an air conditioner in the summer and traveled home to see my family for the National Day Holiday. One of my classmates lives in a small city and earns 3000 yuan. But he is better off than me."

Recently, Chen has been paying close attention to news items suggesting a raise in the income tax threshold. "My classmate and I live in different cities but start paying income tax at the same threshold. Couldn't the government levy income tax according to local conditions? If not, can it give tax rebates at the end of the year like "Hongbao" (red envelopes containing money). Then I would be able to spend more freely."

Some experts think variable incomes tax thresholds are a non-starter. "Research shows there would be problems implementing flexible income tax thresholds," said Li Meiyun, associate professor at the School of Civil and Commercial Law at the University of Political Science and Law. "For example, if a big company has branches both in Beijing and the far West, it could avoid tax by paying all its salaries through the Beijing branch, taking advantage of the higher threshold there," she explained.

Professor Li said she agrees with calls for the threshold to be raised from 2,000 yuan to 3,000 yuan. "In my opinion, it should be 5,000. From the point of view of legislation, the purpose of personal income tax is to narrow the gap between the rich and poor, not to raise revenue. And since the income level of Beijing and Shanghai is so much higher than in other places, tinkering with small increases in the threshold will not have much effect."

According to the survey, 35.9 percent consumers are for a substantial increase of the threshold while 27.2 percent are against it. 50.1 percent consumers think the threshold should be increased in line with salaries while 30.5 percent think it should be linked to the CPI (Consumer Price Index). Just over 40 percent think income tax should be levied annually not monthly, which would be fairer to people on flexible salaries. And 24.3 percent think income tax should be levied on families not individuals. Slightly over half of consumers said raising the threshold would boost their consumption.

According to Professor Li, raising the threshold would increase consumer confidence but would have a limited effect. China needs to take comprehensive measures to boost domestic consumption she said.

The effect of personal income tax reform should not be overestimated, said Professor Liu Jianwen, director of the Fiscal and Tax Law Research Center of Peking University. "Raising the threshold might boost consumption by putting more money in people's hands. But they might save the money instead of spending it."

"If the aim is to boost consumption, it would be better to give a tax rebate," said Mr. Liu, an accountant with Deloitte Touche Tohmatsu (DTT). "The state could grant rebates according to people's incomes."

76.4 percent of consumers agree with him. On the methods of implementing tax rebates, 73.3 percent said rebates should be given at year-end and 43.7 percent said rebates should be targeted at first time house buyers. More than 90 percent said a rebate would encourage them to spend more.

Li Meiyun said a tax rebate would boost consumption in the short-term. "The state stimulus package will boost the economy and tax rebates could be a transitional policy. But from the point of view of tax law, adjustments to thresholds are easier to implement. The threshold has already been raised in recent years. If it reaches 5,000 yuan, which is higher than most peoples' income, many people would be taken out of the income tax bracket and would not in any case qualify for tax rebates."

In Professor Liu Jianwen's opinion, it would be difficult to implement a tax rebate in China, as it has never been attempted before. "Take payments to authors for example, suppose a website reprints an author's article. They may pay a copy fee or may not. So whom does the author ask for a tax rebate, the website or the government? It's not feasible, either technically or legally. I would spend the money on social security through fiscal transfer payments rather than tax rebates. That would narrow the income gap as well."

(China.org.cn by Li Shen, December 10, 2008)