In an attempt to stimulate consumer spending China carried out its first major tax reform in the last seven years raising the minimum threshold for personal income tax. China’s top legislature on Friday voted to adopt the revised Individual Income Tax Law and approved the legislation at the end of a five-day bimonthly session of the National People’s Congress (NPC) Standing Committee.
The new law raises the minimum threshold for personal income tax from 3,500 yuan (Rs 35,000) per month to 5,000 yuan (Rs 53,000). Annually the figure has been raised from 42,000 yuan (Rs 4.45 lakh) to 60000 yuan (Rs 6.36 lakh). The exemption limit in India by comparison stands at Rs 2.5 lakh annually. However, unlike India Chinese tax payers can claim very few deductibles.
It adds special expense deductions for items like caring for the elderly, children’s education, continuing education, treatment for serious diseases, as well as housing loan interest and rent.
Personal income tax in China ranges from three per cent for monthly taxable incomes of RMB 1,500 per month (Rs 16000) to 45 per cent for taxable incomes greater than RMB 80,000 (Rs 8.45 lakh) per month.
“The revisions focus on content that is no longer suitable for China’s continuing reform,” Finance Minister Liu Kun had told lawmakers in June when the staff was first considered by the Chinese parliament
He had said that the changes are conducive to reducing tax burdens for taxpayers, raising people’s income and boosting consumption.
China’s total tax revenue in 2017 rose 10.7 per cent from a year earlier to 14.4 trillion yuan, its first double-digit increase in five years, according to figures from the Ministry of Finance. Of the total, revenue from personal income tax surged 18.6 per cent to 1.2 trillion yuan, it said. Individual income tax was the third major contributor to China’s total tax revenue, following value-added tax and enterprise income tax.
There has been over the years increasing demands to lighten the tax burden on Chinese citizens. Under the present global economic situation and China’s trade tussle with the US the move is seen as a sign to provide shelter Chinese economy by stimulating spending.
National retail sales have slowed this year, with the annual growth rate falling to 8.8 per cent in July, down from 9.0 per cent in June, according to the National Bureau of Statistics. The law will kick into effect from January and will be the first time that tax laws would have been reviewed in the last seven years.
The current law has undergone seven revisions since it was enacted in 1980, when the original threshold for individual income tax exemption was 800 yuan per month. It was raised to 1,600 yuan in 2005 and 2,000 yuan in 2007. The current threshold is 3,500 yuan according to the revision made in 2011.
The tax year runs from Jan 1 to Dec 31, it stated. The individual income tax was the third major contributor to China’s total tax revenue, following value-added tax and enterprise income tax.