China Briefing | Bolder plans on schools, health and tax needed for Chinese to benefit from reforms

China’s much-heralded income tax breaks, the first major cut in seven years, came off with a whimper. On August 31 when the National People’s Congress, China’s parliament, approved the changes, the stock markets dipped as the cuts were deemed too little, too late.

The widespread dismay should sound a note of caution to Chinese leaders, who are believed to be preparing for a high-stakes meeting to discuss and approve critical measures to overhaul the economy.

Amid a slowing economy and an escalating trade war with the United States, Chinese authorities are faced with growing demands from citizens to share more of the windfalls from China’s reform and opening up.

At first glance, the latest tax breaks look generous enough. The threshold for personal income tax has been raised from 3,500 yuan (HK$4,014) per month to 5,000 yuan and for the first time, taxpayers are allowed to deduct expenses related to children’s education, elderly care, treatment for major diseases and interest on housing mortgage and rent.

According to Chinese officials, the lower- and middle-income population will greatly benefit from the changes as taxpayers on a monthly income of up to 20,000 yuan will see their tax burden cut by about 50 per cent and the proportion of taxpayers in the urban forces will fall from 44 per cent to 15 per cent.

Alas, the new changes appear to have elicited greater disappointment than elation among the middle class, private entrepreneurs and economists, and enormous anxiety among foreigners living and working in China.