【China Daily】Jia Kang：Income tax reform offers a sense of gain

The Standing Committee of the National People's Congress, China's top legislature, is soliciting public opinion on the draft amendment to the Individual Income Tax Law through July 28. The draft amendment responds to not only people's appeal to raise the threshold of individual income tax, but also focuses on gradually building a personal income tax system that is both comprehensive and able to accommodate diversity, which the government has been emphasizing for years.

Several elements stand out in the draft amendment. First, it uses international experience to differentiate resident individuals from non-resident individuals. The draft says a resident individual is one who has lived in China for more than 183 days, compared with the one-year period previously, and thus expands the jurisdiction of the tax authority.

Second, it imposes a unified tax rate on incomes from various sources, including salary, remuneration and royalty, taxing an individual's annual income instead of monthly income. This means the reform is aimed at building a new personal income tax system that takes into account both separate income sources and the total income of an individual.

Third, the draft amendment optimizes the tax rate structure, remarkably lowering the tax burden of low-and medium-income groups (individuals who pay income tax below the 25 percent rate). But it reduces only slightly the tax burden of high-income individuals (those in the 30 percent, 35 percent and 45 percent tax rate brackets).

However, as part of the comprehensive imposition of tax on various sources of incomes, some taxpayers whose remuneration and service fees account for a majority of their individual or household income (such as senior experts and intellectuals), may have to pay much more as income tax because their remuneration and service fees will be subjected to different tax rates.

And although the five-level progressive tax rate targeting the incomes of businesses remains unchanged, the threshold of the highest tax rate has been increased from 100,000 yuan ($14,996.42) to 500,000 yuan, remarkably reducing the tax burden of businesses run by individuals and contractors.

Fourth, the draft amendment raises the threshold for personal income tax from 3,500 yuan a month to 5,000 yuan a month (or 60,000 yuan a year), reducing the tax burden of low-and medium-income groups.

Fifth, the draft also allows deduction of special expenses such as children's education, treatment for serious diseases, and payments of mortgage interest and rent from the taxable income of individuals. This will make China's individual income tax adjustment more differentiated, targeted and reasonable, promoting a fair tax system.

The draft amendment also has more clauses on anti tax evasion, which will help the tax authorities to better manage the individual income tax system. In other words, the draft amendment truly facilitates tax reform.

In the next stage, the top legislature could discuss whether some preferential tax rates could be imposed on incomes such as remuneration and lecture fee, in order to show the country attaches great value to learned people and intellectuals.

Still, some people are worried that if China's top legislature approves the draft amendment, the government's fiscal revenue would drop.

Individual income tax accounts for less than 7 percent of China's overall fiscal income. So even if the tax reform puts some pressure on China's fiscal revenue in the initial stages, in the ultimate analysis it will not have a huge impact on the fiscal revenue if the authorities manage to build a sound taxation system.

Moreover, the socio-economic trend is one of rising individual incomes. And if individuals' incomes continue to increase, the amount of personal income tax collected will also increase, offsetting the pressure created by a possible reduction in tax revenue owing to the personal income tax reform.

The author is chief economist with the China Academy of New Supply-side Economics.

（From China Daily  2018-07-04）

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第十一届、十二届全国政协委员、政协经济委员会委员，华夏新供给经济学研究院首席经济学家，中国财政科学研究院研究员、博导，中国财政学会顾问，中国财政学会PPP专业委员会主任委员，国家发改委PPP专家库专家委员会成员，北京市等多地人民政府咨询委员，北京大学等多家高校特聘教授。1995年享受政府特殊津贴。1997年被评为国家百千万人才工程高层次学术带头人。多次受朱镕基、温家宝、胡锦涛和李克强等中央领导同志之邀座谈经济工作（被媒体称之为“中南海问策”）。担任2010年1月8日中央政治局第十八次集体学习“财税体制改革”专题讲解人之一。孙冶方经济学奖、黄达—蒙代尔经济学奖和中国软科学大奖获得者。国家“十一五”、“十二五”和“十三五”规划专家委员会委员。曾长期担任财政部财政科学研究所所长。1988年曾入选亨氏基金项目，到美国匹兹堡大学做访问学者一年。2013年，主编《新供给：经济学理论的中国创新》，发起成立“华夏新供给经济学研究院”和“新供给经济学50人论坛”（任首任院长、首任秘书长），2015年-2016年与苏京春合著出版《新供给经济学》专著、《供给侧改革：新供给简明读本》、以及《中国的坎：如何跨越“中等收入陷阱”》（获评中国图书评论学会和央视的“2016年度中国好书”），2016年出版的《供给侧改革十讲》被中组部、新闻出版广电总局和国家图书馆评为全国精品教材。2017年领衔出版《中国住房制度与房地产税改革》、《新供给：创新发展，攻坚突破》、《构建现代治理基础：中国财税体制改革40年》等。根据《中国社会科学评估》公布的2006～2015年我国哲学社会科学6268种学术期刊700余万篇文献的大数据统计分析，贾康先生的发文量（398篇），总被引频次（4231次）和总下载频次（204115次）均列第一位，综合指数3429，遥居第一，是经济学核心作者中的代表性学者。