China will revamp its two-decade-old individual income tax system by raising the amount of standard deduction, a media report said.

Under the tax reform plan, the government will raise the current standard deduction of 800 yuan (US$100), probably to some 1,200 yuan (US$140). According to an Information Times report, Guangdong Province in south China is studying and assessing the reform measures.

China's Individual Income Tax Law was adopted by the National People's Congress in 1980, and amended by in 1993 and in 1999. Many believe the amount of tax-free income set in 1981 is apparently too low and must be raised.

The adjustment of the standard deduction of individual income tax should be made along with the increase of residents' income, and should help ease off pressure on low-income families. Experts say the rise would have little impact on the country's entire financial revenue.

In the first half of this year, China has collected 88.118 billion yuan (US$10.7 billion) of individual income tax, an increase of 15.056 billion (US$1.8 billion) or 20.6 percent over the same period in 2003.

Although the amount of incomes deductible from individual income tax remains unchanged, some developed cities like Beijing, Shanghai, Shenzhen and Guangzhou have already implemented a higher deduction, 1,200 yuan or higher, to reflect the economic development and the rise of residents' incomes.

Since the current standard deduction is too low and could no longer be observed in the country, the Ministry of Finance in August 2004 submitted a transitional plan on individual income tax to State Council, suggesting to raise the tax deduction from 800 yuan to 1,200 yuan.

Another problem arousing attention is that the amount of income deductible from individual income tax for foreigners is 4,000 yuan, 5 times higher than Chinese citizens.

The State Administration of Taxation explained that this policy was administered to attract foreign investors. However, some experts hold that the gap is too large to be reasonable, resulting in dissatisfaction from the public. According to Professor Zhang Wenchun from the Renmin University of China, this policy should better be abolished, based on the fair criterion of taxation.

(China Daily December 14, 2004)