A draft amendment by the State Council will be submitted to the National People's Congress Standing Committee to raise the threshold for paying personal income tax in a move to benefit low and middle income earners.
Although the new tax threshold has not been released, mainland press reports indicated the government would raise it from the present level of 2,000 yuan (HK$2,400) a month to 3,000 yuan.
Some NPC delegates have lobbied to raise the threshold to 3,500, 5,000 or even 10,000 yuan.
'In order to further reduce the tax burden on medium and low-income people, it has become necessary to revise the personal income tax laws and increase the tax-paying threshold,' the State Council said.
The proposal to amend the personal income law needs the Standing Committee's approval.
At an executive meeting presided over by Premier Wen Jiabao yesterday, the State Council, China's cabinet, also decided to streamline existing tax brackets.
In his online interview on Sunday, Wen announced the State Council's tax reform plans in response to a complaint by a taxi driver.
Once the new rules were implemented, he said, they would benefit 'the entire salaried class', from workers to government employees.
'A tax reform is the simplest thing that the government can do to bring them tangible benefits,' the premier said, and personal income tax reform is to be the first thing that the central government will do this year.
The personal income tax law has nine tax brackets, which critics say work against people on relatively low incomes. The maximum tax rate is 45 per cent. The State Council also decided to make 'a corresponding adjustment' in the business income tax for self-employed businesspeople. It did not give details.
Many NPC deputies have proposed raising the income threshold. Dr Ren Zhenglong, an agricultural scientist and deputy from Sichuan, said a person making 7,000 yuan a month would not be considered rich, especially if he or she took care of other people. But the present income tax rules would ask him to surrender 20 per cent of his earnings in income tax. And that would create a lot of psychological pressure for the working class.
Dong Mingzhu, chief executive of Gree Electrical Appliances and a delegate from Guangdong, proposed last year to raise the income tax threshold to 5,000 yuan a month.
This year, Zhao Xizhong, a grain storage expert from Liaoning, said he was preparing a motion to raise the personal income threshold to 3,500 yuan a month.
According to Wen Tianyu, a columnist on Enorth.com.cn, if the personal income tax threshold were raised from 2,000 to 3,500 yuan a month, a taxpayer would save 100 yuan a month. The threshold was 1,600 yuan in 2006 and raised to 2,000 in 2008.