The individual income tax threshold will be increased from 1,600 yuan (US$224) to 2,000 yuan (US$279) as of March 1, 2008. The public is concerned with the range of tax cuts and how the adjustment will be carried out equitably.
Living costs have increased in the last two years so individual income tax deduction criterion needs to be adjusted, said Xie Xuren, Minister of Finance.
Inflation began hitting Chinese Mainland in 2007. Consumer prices have jumped by 4.1 percent in the first three quarters of 2007 as compared with the same period of 2006.
"The tax reduction is too small," complained a resident surnamed Liu in Beijing, who garners a monthly income of more than 5,000 yuan (US$699). Mr. Liu will enjoy a tax rebate of 80 yuan (US$11) after the new personal income tax cutoff point goes into effect.
Most of wage earners will pay less tax accordingly as per the amendment to the Law on Individual Income Tax.
Wage earners with monthly incomes of 1,600 yuan to 2,000 yuan are satisfied with the amendment, those earning 3,000 yuan (US$420) to 5,000 yuan (US$699) consider that the starting point should be higher, a survey reported. Most of those surveyed believe that the cutoff point should be 2,800 yuan (US$392) to 3,000 yuan, based on the current national conditions.
The average monthly salary of urban workers was 1,853 yuan (US$259) in the first nine months of 2007, according to the statistics from the National Bureau of Statistics. The new criterion will cover all the urban income earners above the average monthly salary.
Some people feel that the Law on Individual Income Tax is aimed at adjusting personal income instead of also increasing fiscal revenue. So the individual income tax should not be applied across the board.
"The increase of the personal income tax starting point will not contribute to narrowing income gaps," said Zhao Lun, a professor in finance at the Capital University of Economics and Business.
Suggestions have been made about reforming individual income tax by setting different tax criteria based on basic salaries or consumption levels in different regions.
Also proposed are suggestions that income tax should be individually correlated to unique family conditions.
Another hot topic of public debate concerns casual adjustments in personal income tax threshold. Administrative departments, without any legal hearing or references to official standards, often control these changes.
Some experts suggest that the cutoff point should be calculated based on price increases, with tax authorities making timely adjustments as well.
They also suggest that tax authorities should consider regional differences.
"It would be ideal to deduct individual income tax based on unique family conditions or expenditure items," Zhao Lun told the Xiaokang magazine.
Experts are endorsing further individual income tax reforms.
(China.org.cn by Yang Xi, February 21, 2008)