Personal Income Tax Threshold Expected to Rise to 5000 Yuan

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Observers say China’s personal income tax threshold is likely to rise to 5000 yuan (approx.  USD$781.90) from 3500 yuan at present, following the mooting of an increase by Beijing.

China’s 2018 Government Work Report said that the personal income tax threshold will be raised this year, while also proposing deductions for childhood education and medical treatment costs.

The personal income tax threshold in China has undergone steady increase during the opening and reform period, doubling from 800 yuan in 1980 to 1600 yuan in 2006.

In 2008 the threshold rose to 2000 yuan, before leaping to 3500 yuan in 2011, in a move which reduced the number of tax payers in China from over 900 billion to around 300 billion, as well as the tax payment coverage rate to around 8% from 28%.

Data from China’s Ministry of Finance indicates that in 2017 a total of 1.1966 trillion yuan in personal income tax was collected for a year-on-year increase of 18.6%, accounting for 8.29% of all tax revenues for the year.

In 2011 a total of 605.4 billion yuan in personal income tax was collected, accounting for 6.75% of all annual tax revenues.

Securities Daily reports that the consensus expectation is for the personal income tax threshold to increase to 5000 yuan, with the National People’s Congress currently being convened in Beijing entrusted with the legal authority to make adjustments.

Zhang Yiqun (张依群), head of the Jilin Province Fiscal Science Research Institute, said to Securities Daily that China’s economic growth as well as rises in the living standards and income levels of the Chinese have made an increase in the personal income threshold a timely move.

Ping Qiaobin (冯俏彬), an economics professor at the Chinese Academy of Governance, said that China’s tax policy needed to be made more equitable in order to reduce the burden on the country’s emerging middle-class.

“With regard to personal tax, it isn’t the case that the salaried classes are making large payments, it’s that the high-income class is making small payments,” said Ping.

“Consequently we should reduce the marginal tax rate, and coordinate the links between personal tax and corporate income tax, as well as reduce the burden on on the middle-income demographic by increasing deductions and reducing tax rates.”

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