Income tax reform is proposed

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A tax service hall in Beijing. The State Council passed a draft on Wednesday to reform the personal income tax mechanism to reduce the burden on those on low incomes. [China Daily]

A tax service hall in Beijing. The State Council passed a draft on Wednesday to reform the personal income tax mechanism to reduce the burden on those on low incomes. [China Daily]

China's State Council will present a proposal to the National People's Congress on raising the personal income tax threshold and adjust taxation brackets.

The move is aimed at allaying public concerns over inflation and easing the tax burden on individuals.

Raising the threshold and streamlining tax brackets will increase domestic consumption and improve living standards, analysts said, although the country's cabinet didn't disclose details of the reforms or cite a timeframe for them to come into operation.

"If the lowest tax bracket starts at 3,000 yuan ($456), approximately 20 percent of working people will be liable for income taxes, a reduction from the current 50 percent," said Ping Xinqiao, a professor from the School of Economics at Peking University.

"At present, the majority of taxpayers are from the low- and middle-income groups," he said.

Ping called on the government to use the family as the basic unit for an income tax levy as soon as possible, and said the policies should take into account the different circumstances facing families, including the ages of family members, and educational and living costs.

"Tax policies should be in line with the changing economic conditions and come as a response to soaring inflation," said Zhang Deyong, a researcher from the Institute of Finance and Trade Economics at the Chinese Academy of Social Sciences.

Jia Kang, head of the Institute of Fiscal Science, a think tank affiliated to the Ministry of Finance, said that an increase in the threshold won't improve income distribution while wages remain low, and he argued that "high earners should contribute more in tax revenues."

Jia suggested the government should reduce the current nine tax brackets to five, expanding the range of each bracket and relieving pressure on those in the low- and middle-income groups.

A rise in the personal income tax threshold would benefit the middle- and low-income groups, said Premier Wen Jiabao on Sunday in an online chat with the public.

Xie Xuren, minister of finance, said the government will gradually push the reform of income tax and implement structural reductions in tax rates and thresholds.

The last rise in the personal income tax threshold came in March 2008, when the lowest level threshold was introduced for those earning 2,000 yuan a month from the previous figure of 1,600 yuan.

Analysts said that the changes failed to reflect the variable increases in wages and a rise in consumer prices

In 2010, China's budget deficit was equal to 2.5 percent of gross domestic product with a national debt of less than 20 percent that been contained "within a safe range", said Xie.

The country's inflation rate rose 4.9 percent in January from a year earlier and food prices increased 10.3 percent year-on-year because of a drought in major grain producing regions.

Public concerns over inflation and low wages have put pressure on the government to ease the burden on taxpayers.

The nation's tax system will undergo a major reform in the next five years as domestic consumption is expected to become the engine for economic growth.

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