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China revises individual income tax law, raises exemption threshold

English.news.cn   2011-06-30 15:13:19 FeedbackPrintRSS

By Xinhua writer Yan Hao

BEIJING, June 30 (Xinhua) -- China's national lawmakers on Thursday raised the monthly income-tax exemption another 500 yuan, influenced by the substantial public sentiment favoring an increase.

The National People's Congress (NPC) Standing Committee adopted an amendment to the individual income tax law, raising the monthly tax exemption threshold from 2,000 yuan (307.7 U.S. dollars) to 3,500 yuan (538.5 U.S. dollars).

The adjusted threshold is 500 yuan greater than the amount originally proposed in a previous draft of the amendment, which was submitted to the top legislature on Monday for its second reading.

PUBLIC OPINIONS COUNT

Li Fei,vice chairman with the NPC Standing Committee's Commission for Legislative Affairs, said the top legislature is all ears to suggestions and advice on reform of the individual income tax law.

The new exemption threshold was agreed upon after the legislature held two meetings on Tuesday and Wednesday. It was during these meetings that lawmakers with the NPC's Law Committee proposed raising the threshold to 3,500 yuan.

The amendment is "necessary and timely" and will relieve tax burdens for people with low incomes, as well as help adjust the distribution of income, according to the law committee's proposal.

The previous law stated that individuals who earn less than 2,000 yuan (307.7 U.S. dollars) per month are not required to pay income taxes. The draft amendment, submitted for its first reading on April 20, proposed raising the threshold to 3,000 yuan per month.

Many of the nation's citizens previously voiced their dissatisfaction with the 3,000-yuan threshold, appealing to lawmakers to reconsider the amendment.

Before the NPC Standing Committee started its second reading on Monday, the legislature publicized suggestions and opinions solicited from online taxpayers, hoping to acquire useful ideas for lawmakers to consider in their reading of the draft amendment.

Of the 82,707 citizens who commented on the draft amendment, 83 percent of them disagreed on a 3,000-yuan exemption threshold, while many favored raising it even higher.

The top legislature said that more than 230,000, the amount of public suggestions to the draft amendment, has been the highest of its kind in China's legislative history.

"Legislation is an ever-improving process," Li Fei said at a press conference held by the NPC Standing Committee on Thursday afternoon.

"During the meetings to review the draft amendment, some lawmakers suggested further steps in raising the exemption threshold, and so we did in the final decision," Li said.

In fact, sources with the top legislature who witnessed the discussions said that hot debates went on on whether to further raise the exemption threshold. Some lawmakers argued that with strong public disagreement, it would be very hard to explain if the new law remained at the threshold of 3,000 yuan.

"The question is not just about the exact amount of exemption threshold, be it 3,000 yuan or 5,000 yuan," said Cheng Yiju, a lawmaker. "It in fact reflects how seriously we're taking public concerns."

60 MILLION TAXPAYERS EXEMPTED

According to the top legislature's general office, 134 members of the NPC Standing Committee voted for the law's draft amendment and six lawmakers voted against it.

Calculations by the top legislature shows that raising the exemption threshold from 2,000 yuan to 3,000 yuan will exempt income tax for 48 million Chinese.

"Don't underestimate the 500 yuan," Li Fei said. "It will exempt income tax for an additional 12 million citizens, and the new law will totally exempt 60 million people."

The focus of the law's revision is to reduce the burden for the medium and low-income population, and increase taxes on high-income individuals, said Wang Jianfan, vice director of taxation department with Ministry of Finance.

The raise of the exemption threshold is also in compensation to the rising cost of living caused by inflation, Wang said.

The previous version of individual income tax law featured a nine-bracket progressive taxing mechanism for monthly paying taxpayers. Taxes are calculated after subtracting the exemption threshold, with each level carrying different tax rates. The smallest bracket features a 5-percent tax rate for people who earn monthly salaries between 2,000 and 2,500 yuan.

The new law reduces its previous nine-bracket mechanism to a less-segmented seven-bracket system, eliminating brackets corresponding to tax rates of 15 and 40 percent.

It also reduces the minimum tax rate from 5 percent to 3 percent for people whose monthly incomes are between 3,500 and 4,500 yuan.

According to Li Fei, the reduction of the minimum tax rate will greatly relieve the tax burden for monthly salaried taxpayers because 70 percent are in the bracket.

All three measures, raising exemption threshold, downsizing brackets and reducing the minimum tax rate, will cut the government's tax revenue by about 160 billion yuan (24.6 billion U.S. dollars) for a whole year theoretically, Wang Jianfan said.

Since the new law will take effect on September 1, the actual tax revenue reduction will be about 53 billion yuan (8.2 billion U.S. dollars) this year, Wang said, adding that the new law's combined measures will reduce the number of the country's individual income taxpayers from 84 million to 24 million.

The Law on Individual Income Tax was first passed by the top legislature in 1980 after China initiated an economic reform to develop its own market economy.

With rapid economic and social progress, the law has been revised at least four times to raise the exemption threshold and adjust other rules to realize its original legislative objective: to exempt the low-income portion of the population, reduce taxes on medium-income citizens, and levy more on high-income individuals.

Currently, the government's individual income tax revenue accounts for about 6 percent of its total revenue each year.

Related:

China debates raising income tax threshold

BEIJING, June 17 (Xinhuanet) -- The NPC Standing Committee, China's top legislature, has published suggestions and opinions on amending the Law on Individual Income Tax. 85 percent of people who submitted opinions disagreed with the government's proposal to raise tax-exempt income to 3000 yuan. Full story

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