Tax reform aims to fuel consumption

0 Comment(s)Print E-mail Xinhua, March 14, 2011
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China is proposing tax reform to ease the financial burden of lower-income earners and boosting consumption, but consumers and market watchers alike are hoping it's just a first step in helping people cope with the twin costs of inflation and runaway housing costs.

The State Council, China's Cabinet, has proposed to raise the minimum income threshold of the personal income tax and adjust tax rates and brackets so that those who earn the least will pay less or nothing at all.

There's no official timetable on the implementation of the new threshold. The proposal is expected to be reviewed by the Standing Committee of the National People's Congress in April and implemented in the second half of this year, according to an Economic Observer report.

Though no details of the proposal have been announced, the minimum income tax threshold is expected to be raised to 3,000 yuan (US$455) from 2,000 yuan. The current level is deemed too low as the majority of bottom-level wage earners are covered by it.

"There have been talks of a higher exemption for years," said Freeman Bu, an Ernst & Young partner. "China's shift of focus from pursuing absolute economic growth to improving people's living conditions in the 12th Five-Year Plan (2011-2015) consolidates the tax reform."

For the Five-Year plan that began this year, China lowered its growth target and signaled that reducing the tax burden is one way to make daily life easier for millions of people.

China now levies its personal income tax on employment income in a progressive tax system in nine brackets, ranging from 5 percent to 45 percent, depending on income.

That means a junior technician earning 2,800 yuan a month would pay a 5 percent tax rate, while a professional like a lawyer, earning 120,000 yuan a month, would pay at the highest bracket. The emerging middle-class, which earns on average between 10,000 yuan and 20,000 yuan a month, faces a 25 percent rate.

China defines income, for tax purposes, to include bonuses, lottery winnings and other income besides salary.

The proposed tax reforms may pare the current nine income brackets to possibly five or six. The 45 percent top rate is expected to stay unchanged, analysts said.

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