The public has expressed a high degree of concern since a draft amendment to the Personal Income Tax Law was submitted to the National People’s Congress.
The amendment proposes the tax threshold be raised to 3,000 yuan a month ($460) from the current 2,000 yuan and the current nine brackets of the rating system be reduced to seven. On the first day of publication, the top legislature received more than 100,000 responses and had collected nearly 200,000 by May 8, which is the total number of responses it received for all the 20 law drafts made public since 2009.
Many have complained that the tax threshold’s 1,000-yuan rise is not enough and there are those who have been critical of the whole tax system. Some urban dwellers, especially those in Beijing, Shanghai, Shenzhen and other large cities, published their living costs online on a variety of websites and forums, and these were much higher than the minimum living expenses calculated by relevant government departments.
The National Bureau of Statistics (NBS) recently offered some confusing statistics on the country’s per capita housing expenses, an important part of people’s living costs, and that has further undermined the NBS’s long-controversial credibility and also increased people’s doubts about how reasonable a tax threshold of 3,000 yuan is.
Hua Sheng, a Beijing-based economist, is staunchly opposed to government moves to raise the minimum tax threshold by a large margin, citing this does no good to low-income earners, especially those with a monthly income below 2,000 yuan. He argues that the government should prioritize raising the incomes of this group rather than reducing taxes for higher-income people.
Such a viewpoint has no solid foundation because it ignores the fact that any government moves to raise the incomes of low-income people do not contradict its efforts to reduce tax for middle-income residents. It is by no means an “either this or that” choice.
However, to further raise the minimum tax threshold to 5,000 yuan or more, as some netizens have suggested, would cause a large loss of government fiscal revenue. Even increasing the tax threshold to 3,000 yuan will directly result in a decline of 90 billion yuan in government revenues, according to estimates by the taxation authorities.
But the Chinese government is financially powerful enough to take steps toward reducing income tax. The central fiscal revenues have maintained a 20-30 percent growth year-on-year in recent years, much faster than the growth of people’s per capita incomes. Reducing people’s tax burdens appears particularly important and urgent when domestic demand has long remained too weak to drive national economic growth.
In its 12th Five-Year Plan (2011-2015), the government is in a very good position to maintain a considerable growth in people’s incomes and boost domestic demand. Together with the high CPI, these are enough to raise people’s expectations of further tax relief.
In an online chat on the Xinhuanet.com with netizens in February, Premier Wen Jiabao promised to raise the minimum threshold of personal income tax this year when responding to a taxi driver’s complaint that the current 2,000-yuan tax threshold is too low.
In fact, it is not a difficult decision if the government has hammered home the knowledge that its fiscal revenues are meant to serve the people and improve their livelihoods and welfare, rather than to pursue a growth in the State coffers. Public money should be used for the public. Reducing tax serves as the most direct way to achieve this.
Public opinions on the disclosed draft to the Personal Income Tax Law continue to pour into the NPC. They are a crucial means for it to interact with the public and should be taken into consideration by the country’s supreme power organ on the issue of tax reductions.