Bid to cool hopes of rise in tax threshold

PUBLISHED : Friday, 19 June, 2009, 12:00am
UPDATED : Friday, 19 June, 2009, 12:00am

The Finance Ministry's suggestion in a report that raising the threshold of the mainland's relatively low personal income tax would benefit high-income people the most appears to be aimed at cooling public expectations about such a rise any time soon.

The report, published on the ministry's website on Wednesday night, said raising the 2,000 yuan (HK$2,270) monthly tax threshold any higher would not benefit middle-class earners and would hurt low-income earners. If the tax threshold were raised to 3,000 yuan a month, the report said, people with a monthly salary of 5,000 yuan would pay only 100 yuan less in personal tax, while those who earned 100,000 a month would save 350 yuan.

'If personal tax paid by high-income taxpayers is reduced on a large scale, the total tax income of government will decrease. As a result, government subsidies to low-income or needy people will be affected,' the report concluded.

The report came as the Finance Ministry is under pressure from the National People's Congress and the Chinese People's Political Consultative Conference to advance tax reform. Recent discussions by the central government on improving consumption to offset the impact of falling exports were also interpreted by analysts as a sign that the personal tax threshold might be raised to leave people with more cash in hand.

Figures released in April by the National Bureau of Statistics showed urban residents spent an average of 2,013 yuan a month on basic living expenses - a number higher than the personal tax threshold. Many analysts said it was unacceptable for people's basic living costs to be eaten up by taxes.

The Finance Ministry, obviously aware of such discussions, tried to convince the public by putting up numbers. Of the 372.2 billion yuan in personal income tax collected last year, the report said, 35 per cent or 129.4 billion yuan was paid by the top 3 per cent of income earners, or 2.4 million people.

In the mainland's personal tax system, people pay from 5 per cent to 45 per cent in tax depending on how much they make.

'The threshold of 2,000 yuan is, in fact, still a reasonable standard for the majority of taxpayers,' the report concluded.

He Zhenyi , a researcher with the Institute of Finance and Trade Economics under the Chinese Academy of Social Sciences, said the report's conclusion had some merit as social equity was a key factor the government had to consider.

Under the current circumstances, Mr He said, maintaining the status quo could be less harmful than raising the personal tax threshold.