Chinese lawmakers deliberate revised version of income tax bill

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Chinese lawmakers on Monday began the second reading of a draft amendment to the country’s Individual Income Tax Law at a bimonthly session of the top legislative body, the Xinhua News Agency reported.

The Standing Committee of the National People’s Congress (NPC) will consider a revised version of the tax bill, which failed to pass on its first reading in June.

According to the proposal, the minimum threshold for individual income tax was to be raised from 3,500 yuan (about $509) to 5,000 yuan per month, or 60,000 yuan per year.

It also added special expense deductions for items like children’s education, continuing education, treatment for major diseases, as well as housing loan interest and rent.

Explaining the draft to the lawmakers, Xu Hui, vice chairman of the NPC’s Constitution and Law Committee, said that it is necessary to revise the current law to enable taxation to better play its role in adjusting income distribution.

“The move has fully taken into consideration the fact that the aging population and the number of single-child families is growing among the wage-earners in China,” he added.

However, the tax cut failed to satisfy Chinese citizens, with many of them flocking to the country’s Twitter-like Sina Weibo to propose raising the monthly tax-free income level to 10,000 yuan, or 120,000 yuan per year.

“I think the exemption should be further lifted to at least 10,000 yuan per month, considering my rent in Beijing costs me at least 3,500 yuan, not to mention I have other necessary spending,” a Weibo user nicknamed Zhu Ling said.

Some also argued against the current design of tax deductions.

“I think single people are discriminated against by the bill. A couple, each of whom earns 8,000 yuan per month, can avoid tax because they could use the cost of their kids’ education as a deduction, but a single man like me who earns 12,000 yuan will have to pay much more. It is not fair,” a Weibo user named “general of the sheep” said.

This round of tax reform comes amid inflation, consumption slowdown, and China-US trade war.

Inflation, especially skyrocketing house prices, has significantly pushed up the cost of living in China over the past several years, resulting in increasing living costs.

China boasts the world’s biggest market and has always viewed domestic demand as one of its major economic driving forces.

The tax cut is believed to be a move to stimulate consumer spending at home, though many experts think one shouldn’t overestimate the positive impact.

Under the proposal, someone with a 10,000 yuan monthly salary will see their tax bill slashed by 71 percent to 115 yuan.

The individual income tax was the third major contributor to China’s total tax revenue, following value-added tax and enterprise income tax. In 2017, China collected individual income taxes worth nearly 1.2 trillion yuan, about 8.3 percent of the total tax revenue.

The current law has undergone seven revisions since it was enacted in 1980 when the original threshold for individual income tax exemption was 800 yuan per month.

It was raised to 1,600 yuan in 2005 and 2,000 yuan in 2007. The current threshold is 3,500 yuan according to the revision made in 2011.

If the second reading is approved, the amendment will take effect on January 1 next year while the minimum threshold for personal income tax exemption is scheduled to go into force on October 1 this year. However, if objections remain, a third review would be required, potentially with a later effective date.

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