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Personal Income Tax to Stay As Is for Now

"The personal income tax rate in China is really too high, and the monthly tax report is also too much frequent," complains Li Guoxiong, a partner in the Ernst & Young accounting company.

Lowering the personal income tax rate would benefit both ordinary citizens and China's national economy, Li suggests.

Ernst & Young said on June 18 that it has been carefully monitoring China's tax system reform and has on many occasions provided advice. The partners of the firm once sent a report to the State Administration of Taxation in the name of the Hong Kong Society of Accountants, saying that compared with developed and neighboring nations, the tax burden in China is heavy and probably ranks among the top five.

Xu Shanda, vice director of the State Administration of Taxation, said at the recent Chinese Economists 50 Forum that an adjustment to the tax is on the way, but it will not be completed within the next year or two.

"Amendment of the personal income tax law is not listed in the plan of 10th National People's Congress Standing Committee this year or next year," Xu pointed out.

The third plenary session of 16th Central Committee of the Chinese Communist Party issued a statement that the personal income tax system should be improved, and a new one should be developed that is both comprehensive and graduated. It said that reform should be carried out step by step, based on the principles of systemic simplicity, broad sources of revenue, low tax rate and strict application and management.

The highest personal income tax rate in China is some 45 percent, says Li Guoxiong. Lowering tax rates and expanding sources of tax revenue is a global trend, and China should be no exception.

Another partner at Ernst & Young, Fu Zigang, uses the United States as an example. The US once set its personal income tax rate at 70 percent in order to collect more taxes. However, when Ronald Reagan took office, he slashed the rate to 30 percent within a few years. The measure accomplished much: personal income and tax revenue both rose.

Foreign investors hope to see a Chinese tax system that more closely resembles international tax requirements, such as yearly tax reports, low tax rates and more deductible items, Fu said.

Currently, the threshold of personal income tax in China is 800 yuan (US$97), and with no variances by region or group. Fu believes that this type of system invites unfairness.

In Hong Kong, the threshold of personal income tax is HK$100,000 (US$12,825). However, families with children may deduct HK$30,000 (US$3,847) for each child. There are different tax rates for married and single people, as well; and those who care for an elderly parent have additional deductions. Even bus drivers are permitted to subtract training and license fees before calculating their tax.

Fu suggests that such adjustments to personal income tax are important lures to attract international talents.

(China.org.cn by Tang Fuchun, June 29, 2004)

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