No hasty tax reforms

Every year during the annual sessions of the country's top legislature and the political consultative body, proposals pertaining to individual income tax receive widespread attention; this year has been no exception.

A deputy to the National People's Congress, for instance, proposed that the tax exemption threshold should be raised from the 3,500 yuan ($572) at present to between 6,000 to 7,000 yuan. Another member of the National Committee of the Chinese People's Political Consultative Conference has argued that the threshold should be 30,000 yuan when inflation is taken into account.

There have also been proposals for lowering the country's top tax rate of 45 percent on the grounds that it has driven many business owners to reject or accept only a symbolic amount of salary to evade tax. Meanwhile some corporate executives working with foreign-funded companies in the Chinese mainland have their paychecks issued in such regions as Hong Kong and Singapore where the top tax rate on personal income is 20 percent or less, which results in them making a significantly smaller contribution to the national coffers.

It is true that alleviating the tax burden is appealing to most people. However, any proposal concerning the deepening of tax reform should be based on facts rather than on feelings, says a commentary in China Business News on Monday.

The fact is, revenue from personal income tax usually accounts for a very small proportion of the total tax revenue in China, and the figure was less than 6 percent in 2012. In the member states of the Organization for Economic Operation and Development, the personal income tax revenue represented about 35 percent of total tax revenues in 2009, and in the case of the United States, that figure was 46 percent.

Another basic fact is that less than 8 percent of the working population has to pay individual income tax in China. According to the China's State Administration of Taxation, the number of individual income tax payers is around 30 million, one-third the number that were liable for tax before the country raised the monthly exemption threshold from 2,000 yuan to 3,500 yuan in 2012.

The deepening of tax reform can be approached in various ways, but it would be unwise to resort to any hasty means that will further erode the country's already shrinking tax base.

(China Daily 03/11/2014 page9)