Chinese officials have refuted the speculation that the government was planning to raise personal income tax on earnings of more than USD 18,400 a year, after netizens responded “furiously” to reports that plans were afoot to increase the tax burden on the emerging middle class. Rumours were rife that the government was planning to raise income tax on the earnings of more than 120,000 yuan (USD 18,460) a year, prompting the officials to say that people were putting together two separate things, state-run Global Times reported on Monday.
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Citing unnamed experts affiliated with the State Administration of Taxation (SAT) and the Ministry of Finance, state-run Xinhua News Agency on Monday reported that suggestions of higher tax rates for those residents with earning above 120,000 yuan per year misread the document and they were mere rumours.
Despite the clarification, a document from the State Council, China’s cabinet indicating a possible increase in income taxes had already resonated over the past few days, the report said.
Following the document’s release, articles that suggested a raise have been widely shared on Chinese social media sites, and received comments expressing shock and disbelief over such a low threshold for higher incomes, it said.
“Earning 120,000 a year is high? After all our daily expenses, with that income, we can’t even afford a one-square meter home, and you are telling me that’s high income,” one netizen said yesterday on Weibo, a popular social media platform in China.
The 120,000 yuan per year level was pegged during reforms implemented in 2006, which required those falling under that category to file a report with taxation authorities, according to Li Wanfu, director of the Institute of Tax Science, a research arm of the SAT.
“People are putting two separate things together and spreading rumours. It was not set as a high income threshold in 2006, and certainly not now after 10 years,” Li told the Global Times.
“The working class is very concerned about any changes to their tax rates because it’s their hard-earned money and they face very high stress living in the cities, and they should not pay higher rates,” said Ma Caichen, a professor at the School of Economics at Nankai University.
Ma said that given the huge income gap among different Chinese cities it was impossible for the country to set a specific threshold for high income earners that fits the whole country.
“For example, 120,000 yuan per year in Beijing might be quite low, considering rising housing prices and other living standards, but in Qinghai Province, that’s a lot,” he said.
But this is just a threshold tax authorities want to monitor, not for implementing higher tax rates, so it is still a “reasonable threshold” on the national level, he said, suggesting that the income tax threshold be adjusted based on changes in prices.