A pioneering US approach to taxation which enables couples to jointly file based on whole family income, including deductions, is garnering attention in China, although it is not clear that mainland authorities plan to role out a similar scheme any time soon. Experts say that China will strive for further reform to its tax system to reflect the rising cost of living and ensure competitiveness in the global arena. In this year’s government work plan, Premier Li Keqiang said China will increase the salary taxation threshold. Deputy finance minister Shi Yaobin also told a press briefing in Beijing earlier this month that China will improve its individual tax levy regime by shifting towards a comprehensive taxation system. By doing so, Beijing is considering increasing the base income for taxation by combining similar sources, including salaries and pay and adding more deductions, including children’s education and medical treatment for critical illnesses. The reform has reignited talks on how far China can go in the direction of the US model. Liu Shangxi, head of the finance ministry’s research institute, believes Chinese taxpayers are not ready for the complex filing process needed for the US approach. “In the US, there’s a shared feeling that tax return filing is troublesome,” Liu said on sidelines of the legislative meetings in Beijing this month. “If we go that far, one day lots of people will start complaining.” A direct comparison of the taxation systems between the world’s top two economies is not accurate due to the wide difference in the kinds of financial and investment opportunities and their respective tax treatments. It is widely believed that a household declaration can help make taxation fairer by taking into account both individual income and household spending. Liu said China should learn from the lessons of developed nations including the US. However, he cautioned that the complicated US tax code translates into higher compliance costs when taxpayers have to wrestle with the complexities of filings that often require specialist help. Meanwhile, China is far from ready in adopting family-based taxation owing to an insufficient database, and the lack of a comprehensive information system to monitor taxpayers’ income from various sources and household assets. There are concerns that some tax avoiders would use loopholes and exemptions to put themselves into lower tax brackets in the event of insufficient monitoring, he said. Liu Xiaobing, dean of the School of Public Economics and Administration, at Shanghai University of Finance and Economics, said there is no need to be overly worried about loopholes in a family-based system, stressing that stricter tax collection and severe penalties can be effective in preventing systemic abuse. “The key hinges on the determination from government, whether it intends to do it or not,” Liu said. In fact, government proposals on setting up a comprehensive individual income tax system can be traced back to the mid-1990s. Yet for various reasons, the reforms were slow moving. Changes to the tax system invariably have an impact on fiscal revenues, which partly explains why policymakers were cautious. China’s total tax revenue for 2017 increased 10.7 per cent to 14.4 trillion yuan (US$2.27 billion), resuming double-digit growth for the first time in five years, according to the Finance Ministry. Tax revenue from individuals grew by 18.6 per cent to 1.2 trillion yuan. Freeman Bu, an EY tax partner, said the mainland should keep testing individual income tax reform step by step, rather than waiting. “The mainland needs to take into account global taxation mechanisms when those highly-educated, highly-paid talents are what all nations are fighting for,” he said. China’s individual income tax system hasn’t undergone a reset since 2011, when the salary taxation threshold was raised to 3,500 yuan from 2,000 yuan and tax brackets was cut to seven from nine in a tax relief programme. In 2006, China raised the threshold to 1,600 yuan from 800 yuan, a standard set in 1980. The latest legislative plan indicates that it will be a while before taxpayers see any direct benefits. The review of individual income tax law – a must-have procedure for any change in the tax code – was not on the agenda of the standing committee of the National People’s Congress this year. It will take at least another year before reforms are back on the agenda. China levies tax on monthly salary progressively in seven brackets, ranging from 3 per cent to 45 per cent. In addition, the state collects tax on income including pay, and royalties, with a flat 20 per cent rate.