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China to Further Reform Individual Income Tax
Figures from the State Administration of Taxation indicate that the amount of personal income tax collected in China soared from 7.27 billion yuan (US$876 million) in 1994 to 51.1 billion yuan (US$6.2 billion) last year.

During the first seven months of this year, individual income tax rose more than 50 per cent to 54.7 billion yuan (US$6.58 billion).

In Western countries, the individual income tax is the largest single tax source of central governments, which makes up 20 to 25 per cent of the total central tax income, Xia said.

"But in the short term, the Chinese central government will not make individual income tax a major central tax source, because the average income level of Chinese residents is relatively low," he said.

The central government is also required to consider the interests of local governments, he said.

"The central government will only share a minority of the increased part of the income tax next year, based on the taxes collected this year," Xia said.

Zhang Peisen, a senior researcher with the Taxation Research Institute, said the detailed reform scheme on individual income tax has been submitted to the National People's Congress and is yet to be approved.

He did not give further details, such as how much the threshold on individual income tax will be raised.

"The threshold should be about 1,500 yuan (US$180) a month," said Hu Shaowei, an economist with the State Information Center.

The present threshold of 800 yuan (US$96) a month was introduced in 1981, when the living standards of ordinary residents were very low, he said.

At that time, the income of residents was less than 100 yuan (US$12) per month and so remained untaxed.

China's reforms and opening up over the past two decades have rapidly increased average incomes, Hu said: "Residents with monthly incomes of less than 600 yuan (US$72) are considered low, an income of at least 900 yuan (US$108.4) per month is needed to maintain a basic standard of living."

Individual income tax reform should also take into account a taxpayer's family burden, such as whether they have a child or elderly family members to support, because the tax is designed to keep a fair distribution of social wealth, said Hu.

According to investigations by the National Bureau of Statistics, the Gini Index, an international measure used to measure income distribution, stands at 0.458 in China. This is above the international warning line of 0.4, and indicates that Chinese society suffers from income distribution inequity.

(People's Daily December 18, 2001)

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