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Report Suggests Income Tax Adjustment
The recently completed "Income Distribution and Tax Policy of China" mentions that the current personal income tax policy needs adjustment, which has raised great concern from common Chinese. The report, drafted by the Fiscal Research Institute under the Ministry of Finance, has been handed to relevant departments as a reference for decision-making. Following is an interview by the Guangzhou Daily reporter with Dr. Bai Jingming, chief composer of the report.

Reporter: Is the current tax threshold (800 yuan or US$96.6) reasonable?

Bai: The tax threshold, set in 1981, is obviously too low nowadays. In the past 20 years, the disposable income of the Chinese, especially those urban dwellers, has been greatly raised. The government's tax policy is an important measure to achieve the goal of fostering middle-income group set in the report to the 16th CPC Congress.

Reporter: What's your ideal tax threshold? Is it feasible for different regions to implement different tax threshold and tax rate?

Bai: If there's a uniform tax threshold, I think it should be at 1,200 yuan (US$145). Actually, the minimum tax threshold in Beijing has been raised to 1,000 yuan (US$120.8) for several years.

Data from the National Bureau of Statistics (NBS) show that some industries have monthly salary exceeding 1,000 yuan (US$120.8), and some even have their yearly salary exceeding 60,000 yuan (US$7248). However, the actual revenue, including extra incomes, is more than that. Research shows that it is feasible to adopt different tax threshold and tax rate in different regions, but it needs more coordinated measures in practice. For example, the current centralized tax system should be changed to a decentralized one; government should ensure expenditure in pubic welfare and encourage citizens to enjoy the investment.

Reporter: Why does the report call for lowering the tax rate for monthly salaries of 3,000 - 5,000 yuan (US$362-US$604)? What tax rate do you think is the most suitable?

Bai: Both survey and statistics reveal that a monthly salary of 3,0005,000 yuan (US$362-US$604) is the mark of middleincome group in China. If government imposes high tax rate on them, the consumption and economic growth will be dampened.

We believe that these people who make 3,000-10,000 yuan a month (excluding welfare and the social security) should be placed to middle-income group. Although the group is only a small proportion of the population, their consumption power, like that in buying cars, houses and travel, is huge. On the other hand, people with salary of 3,000-5,000 yuan (US$362-US$604) account for most of the middle-income group, therefore, it is necessary to lower tax rate to boost their consumption.

Personally, I think the tax rate for income between the tax threshold and 5,000 yuan (US$604) should be 10 percent. It accords with government's policy to foster middle-income group.

Reporter: The document suggests that tax should be levied on middle-grade and luxurious houses, but I wonder how you classify houses? Meanwhile, since house-buyers have already paid relevant taxes and fees, how should the matter be handled in case there is contradiction between the old and new tax policies?

Bai: Those self-employed and those who have fixed assets usually own middle-grade or luxurious houses. However, their ratepaying is usually ignored. The tax imposed on middle-grade and luxurious houses can make up the tax losses.

The current real estate tax is only imposed on commercial houses. Its tax revenue has exceeded 50 billion yuan (US$6 billion) every year. Its growth rate in some regions is only next to that of personal income tax.

However, before the tax is levied, three problems have to be solved: standardize house deal and punish business fraud, curb abused charge by property management companies; divide the value-added tax into some static taxes, cancel contract tax and stamp tax; the house-owners should hand in up to 1 percent tax of house value, which should be evaluated every three years. The tax rate on luxurious house can be a little higher.

(China.org.cn by Tang Fuchun, July 3, 2003)

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