Higher threshold for income tax stays

PUBLISHED : Tuesday, 28 June, 2011, 12:00am
UPDATED : Tuesday, 28 June, 2011, 12:00am


The top legislature has endorsed raising the income threshold for paying income tax from 2,000 yuan (HK$2,400) to 3,000 yuan a month, facing down huge public support for setting the level higher to exempt more wage earners.

The Standing Committee of the National People's Congress announced its decision yesterday. It endorsed the measure in its first reading two months ago.

Lawmakers will deliberate for a second time on the draft changes to the Personal Income Tax Law in a three-day meeting that began yesterday.

However, they did announce a change in the tax rate on the first 1,999 yuan of taxable income. It will now be 3 per cent, not the 5 per cent initially proposed.

After the first reading in mid-April, the Standing Committee's Legislative Affairs Commission launched a public consultation that ran from April 25 to the end of May.

More than 80 per cent of respondents to an online survey disagreed with the plan to raise the threshold by just 1,000 yuan a month, with 48 per cent suggesting that it be raised to 5,000 yuan a month. Of the more than 80,000 people who commented on the proposal, only 15 per cent favoured raising the threshold to 3,000 yuan.

At the April meeting, lawmakers could not agree on the proposal and decided to delay a vote on the change. Some members felt the proposed change in the threshold was too small, according to mainland media reports.

However, Legislative Affairs Commission vice-chairman Hong Hu said yesterday that after serious consideration, the Standing Committee decided to stick with the original proposal while reducing the tax rate for the first tier of taxable earnings by two percentage points.

If the draft law is approved at the end of this bi-monthly meeting, those earning less than 20,000 yuan a month will end up paying less tax.

However, those earning more than 20,000 yuan will have to pay more. The highest tax rate on the very top tier, those earning more than 80,000 yuan a month, remains unchanged at 45 per cent.

The draft amendment also calls for the number of tax brackets to be cut from nine to seven.

As inflation surges and residents' share of overall national income shrinks, more low- and middle-income earners are calling for cuts in their personal income tax bills. On online forums, internet users have called for a higher tax-free threshold. Several migrant workers said 3,000 yuan was not enough to live on in a big city, let alone to raise a family.

Jia Kang, director of the Ministry of Finance's Research Institute for Fiscal Science, suggested more effort should be made to ease the tax burden on middle-income earners, those earning between 7,500 yuan and 12,000 yuan.

Property tycoon Pan Shiyi said: 'I would ask the leaders why they couldn't raise it to 5,000 yuan.'

Finance Minister Xie Xuren said recently that the proposed new tax rate would benefit some 200 million taxpayers, with the proportion of the population paying taxes falling from 28 per cent to just 12 per cent.


The drop in tax revenue in yuan that some analysts estimate will result from lifting the monthly tax threshold to 3,000 yuan