NPC votes for bigger rise in tax threshold

PUBLISHED : Friday, 01 July, 2011, 12:00am
UPDATED : Friday, 01 July, 2011, 12:00am


The mainland's top legislature has approved a bigger increase in the income tax threshold in a rare case of public outcry resulting in a significant change to proposed legislation.

The Standing Committee of the National People's Congress has decided to lift the monthly threshold from the previously proposed 3,000 yuan (HK$3,612) to 3,500 yuan, Li Fei, vice-chairman of its Legislative Affairs Commission, told a briefing yesterday.

On Monday, the NPC Standing Committee said it had decided to keep the tax exemption threshold at 3,000 yuan a month, unchanged from the first reading two months ago and 1,000 yuan higher than the current 2,000 yuan.

After the first reading in mid-April, the Legislative Affairs Commission launched a public consultation exercise that ran from April 25 to the end of May. More than 80 per cent of the more than 80,000 citizens who commented on the proposal in an online survey disagreed with the government's previous plan, while only 15 per cent favoured raising the threshold to 3,000 yuan.

Forty-eight per cent suggested that the government should raise the threshold to 5,000 yuan a month.

In the April meeting, lawmakers could not agree on the proposal and decided to delay a vote on the change. Li said yesterday that some lawmakers, in debates on Tuesday and Wednesday, felt the previous proposed change in the threshold was too small and said the government should offer a bigger tax cut.

After yesterday's vote, Xinhua said the top legislature had decided to lift the threshold further due to a public outcry.

'This (change) reflects the democratic and scientific manner of law-making within the NPC Standing Committee and also reflects the importance that the central government has attached to people's livelihoods,' Li said.

Lawmakers had earlier agreed to reduce the tax rate on the first 1,500 yuan of taxable monthly earnings from the 5 per cent in the original proposal to 3 per cent.

Wang Jianfan, deputy director of Ministry of Finance's taxation department, said that increasing the threshold from 2,000 yuan to 3,500 yuan would reduce the number of wage earners paying tax from 84 million to 24 million - or from 28 per cent of wage earners to just 7.7 per cent of them.

Wang said the change will result in a loss of 160 billion yuan in fiscal revenue each year - equal to 48 per cent of personal income tax receipts last year.

The new personal income tax scheme will be introduced on September 1. The tax rate on salaries and wages will range from 3 per cent to 45 per cent, and the number of tax brackets will be cut from nine to seven.

It is the third time that the NPC has revised the personal income tax threshold. In 2006, it was lifted from 800 yuan to 1,600 yuan, and in 2008 it was increased to 2,000 yuan.

Gao Peiyong , a researcher at the Chinese Academy of Social Sciences, said the changes had not gone far enough.

'The amendment should not only have focused on the threshold, but also made comprehensive changes to the structure of the tax, as well as pushing forward the reform of the country's taxation system,' he said.

Liu Zuo, director of the State Administration of Taxation's Taxation Science and Research Institute, said the income tax reform should help China foster a huge middle-income class - those with monthly incomes of about 10,000 yuan.