China Holds Public Hearing On Income Tax Reform

by Mary Swire, Tax-News.com, Hong Kong

29 September 2005

China's highest legislative body conducted its first roundtable meeting with a cross section of the Chinese public on Tuesday, at which important new reforms to the income tax system were the main point of discussion.

The meeting involved 40 Chinese citizens from various walks of life who were drawn from a list of 5,000 applicants. The main point at issue was the proposal to amend the Law on Personal Income Tax, increasing the threshold at which income tax becomes payable on monthly income to 1,500 yuan (US$185) from 800 yuan.

Currently, Chinese workers pay income tax on a sliding scale starting off at 5% for those earning above 800 yuan and rising to a maximum of 45% for those making more than 100,000 yuan a month.

If the amendment is approved, it will be the first time since 1993 that the government has moved to increase the personal tax threshold, something that is being considered in the light of rapidly rising wages, living costs and inflation.

"A major principle is to ensure the threshold of income tax payment will not affect the people's life as they have to pay more for housing and education, medical services," a high-ranking taxation official was quoted by state media outlet, Xinhua, as observing.

An increase in the income tax threshold is widely supported by the public, and a survey of the 20 members of the public delegated to speak at the special legislative session this week revealed that 85% were in favour of raising the exemption limit to 1,500 yuan.

However, there are others that believe the exemption point should be pushed even higher, including the China Federation of Trade Unions, which says that 80% of workers surveyed from five provinces would back an income tax threshold of between 2,000 and 3,000 yuan.

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