China to raise income tax threshold

China is considering raising the personal income tax threshold to 5,000 yuan (US$772) per month – 60,000 yuan a year – from the current 3,500 yuan, according to a draft amendment.

China is considering raising the personal income tax threshold to 5,000 yuan (US$772) per month — 60,000 yuan a year — from the current 3,500 yuan, according to a draft amendment.

The draft was submitted to the third session of the 13th Standing Committee of the National People’s Congress yesterday.

For the first time, comprehensive taxation will cover four earned income items — salaries, remuneration for personal services, authors’ remuneration and royalties.

Several other expenses have been added into the personal income tax deduction for the first time. They include expenditures incurred for children’s education, higher education, medical spending for serious illness, housing loan interest and housing rent.

Minister of Finance Liu Kun told lawmakers that the revisions focus on content that is no longer suitable for China’s continuing reform. The changes are conducive to reducing tax burdens for taxpayers, raising people’s income and boosting consumption, Liu said, adding that the changes have taken people’s rising consumption expenses into account.

According to the draft amendment, the previous method of taxing monthly income will be replaced with a new calculation that focuses on taxing annual income.

“The new method will be fairer and more reasonable for those whose monthly salary varies,” said Zhang Bin, an expert from the National Academy of Economic Strategy of the Chinese Academy of Social Sciences.

If the revisions are adopted, those whose monthly salary ranges from 5,000 yuan to 20,000 yuan will see their tax cut by more than 50 percent and those whose monthly salary ranges from 20,000 yuan to 80,000 yuan will see their tax cut by 10 to 50 percent.

“The personal income tax reform is primarily a good news for middle to lower-income groups as people with less income will see a larger tax reduction,” said Li Wanfu, head of the institute of tax science of the State Administration of Taxation.

This is the seventh overhaul of the personal income tax code since it was first issued in 1980.

If the draft is approved, it will be the fourth time that the threshold of China’s personal income tax has been raised, and seven years since the last adjustment in 2011.

“The amendment will help to alleviate the stress of tax burden on working class people and boost consumption growth,” said Lian Ping, chief economist at Bank of Communications.

The amendment defines resident individuals and non-resident individuals as two types of taxpayers. In addition, the length of time used to distinguish between the two groups will be adjusted to 183 days from the previous 365 days.

“This will help establish tax jurisdictions and safeguard national tax rights and interests,” the finance minister said.

The amendment also adds an anti-tax avoidance clause, empowering tax authorities to adjust taxation in a reasonable way when individuals transfer property in violation of independent trading. Individuals will also be subject to the clause when they evade taxes in overseas tax havens or obtain improper tax benefits by organizing unlawful commercial activities.

In a March report on government work, Premier Li Keqiang said: “We will raise the personal income tax threshold and create expense deductions for items like children’s education and treatment for serious diseases, appropriately lightening burdens, and encouraging our people to increase their incomes and achieve prosperity through hard work.”

China’s total tax revenue in 2017 rose 10.7 percent from a year earlier to 14.4 trillion yuan for its first double-digit increase in five years, according to data from the Ministry of Finance.

Among them, revenue from personal income tax was up sharply by 18.6 percent year on year to 1.2 trillion yuan. The individual income tax was the third-largest contributor to China’s total tax revenue, following value-added tax and enterprise income tax.

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