Opinion

Debate: Individual income

(China Daily)
Updated: 2011-05-16 14:14

Should the individual income tax threshold be raised above the recommended income of 3,000 yuan a month? A journalist and two educators come up with three different suggestions.

Deng Yuwen

It should be raised, but only slightly

The National People's Congress has received the opinions of about 20,000 people since it released the draft amendment of the Individual Income Tax Law on April 25.

People have focused mainly on raising the personal income tax threshold from 2,000 yuan ($308) to 3,000 yuan a month, reducing the tax brackets from nine to seven, and changing the tax rates from 15 percent and 40 percent to 5 percent, 10 percent and 45 percent.

Under the proposed amendment, monthly income of 19,000 yuan would be the critical point, for all taxpayers earning less than 19,000 yuan a month would enjoy tax cuts and those earning more would pay more in taxes.

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At present, 28 percent of wage earners pay individual income tax. But if the amendments were to be passed, their number would be reduced to 12 percent, which is something the government could afford.

Even then the proposals have failed to meet people's expectations. People are still debating whether the limit should be raised above 3,000 yuan, though finance officials and many experts say it should not, because that would leave very few taxpayers in the individual income tax category.

Besides, since rich people will benefit more from a higher threshold, the income gap in the country will widen, instead of narrowing.

Still, most of the people and even some experts want the threshold to be raised to at least 5,000 yuan, if not 10,000 yuan. Their argument is that wage earners - because of inflation and rising living costs - would still be the majority taxpayers.

But I think 4,000 yuan is a feasible threshold. True, it's a big leap. But after deducting various kinds of tax-free insurance and welfare costs, the real income of person with a monthly income of 4,000 yuan would be much less.

If the threshold is 4,000 yuan, people earning 5,000 yuan a month will pay individual income tax of no more than 100 yuan. Currently, the per capita wages in urban areas is about 2,800 yuan - even in big cities such as Beijing and Shanghai the figure is unlikely to exceed 5,000 yuan. So the proposed limit of 3,000 yuan will not benefit many wage earners much.

Apart from the simple math of insurance and welfare costs, we have to consider factors such as skyrocketing housing prices and rapidly rising food prices, which have increased the financial burden on taxpayers considerably. Hence, the government should try to lessen their burden.

But I do not agree that the threshold should be raised to 5,000 yuan, let alone 10,000 yuan. In developed countries, personal income tax is an important tax and accounts for about half of a country's total tax revenue, whereas the percentage is only 6 to 7 in China. So there is no point in decreasing it further by raising the income tax limit above 4,000 yuan.

Moreover, individual income tax, compared with other indirect taxes, is levied directly by the government, and people paying it may have a stronger sense of civil awareness and thus be more adept at supervising the government.

In other words, the 4,000-yuan threshold would strike the best balance among all sides.

The author is a senior editor with the Study Times.