Individual income tax threshold must be raised to propel overall reform

The standing committee of the National People's Congress, China's top legislature, recently reviewed this year's budget enforcement report by the State Council, the country's Cabinet, which says individual income tax grew 18.5 percent from January to July compared with 10 percent growth in people's incomes. Beijing News comments:

The report shows people's incomes grew in the first seven months of this year, but as the individual income tax threshold has remained 3,500 yuan ($534) a month since 2011, they had to pay a higher percentage of their incomes as tax. In fact, many low-and middle-income people have to pay a large part of them incomes as individual income tax.

The case highlights the necessity to expedite the personal income tax reform.

On previous occasions, tax-related departments have said that following thorough research, they had reached a consensus on introducing a comprehensive tax system, according to which expenditures such as educational costs, mortgage loans and the money spent on raising children could be deducted from people's incomes before calculating the taxable amount.

That would be welcome, but it is still debatable which expenditures should be deducted from people's incomes before fixing the taxable amount. That's also partly why the departments are still working on the issue.

The problem is, people's incomes as well as commodity prices have increased during the research period. Which means those departments have to update their data before deciding on the new individual income tax threshold. Perhaps, they should first adjust the existing individual income tax threshold by using the sub-optimal option to ease people's tax burden, which in turn would propel the overall tax reform.

At this year's National People's Congress session in March, Minister of Finance Xiao Jie, responding to public concerns, said the individual tax income threshold would be raised when needed, which was widely welcomed.

But while adjusting the individual income tax threshold, the authorities should also expedite research on the comprehensive tax system as part of the overall tax reform.

(CHINA DAILY)