Taxation authorities may bring about sweeping reforms in the
personal income tax system to lower the risk of tax evasion and to
simplify calculations.
Under the current system, personal income tax is spread across
11 different categories, such as salary, rental income and
freelance earnings, each with different thresholds and rates.
"A unitary tax scheme could solve the problem," a State
Administration of Taxation (SAT) official, who wish to remain
anonymous, told China Business News.
The current scheme allows high-income earners to manipulate the
system to avoid fair taxation by spreading their income across the
categories to avoid detection, he added.
A small minority of the country's top earners filed their tax
returns before yesterday's deadline, a new measure by SAT targeting
those earning more than 120,000 yuan (US$15,400) a year.
According to the latest SAT statistics, 1.37 million people
across the country had filed their income by March 30, this figure
representing only 15 percent of the 6-7 million high-income earners
who were required to do so.
Furthermore, SAT sources revealed tat the number of income tax
bands will be slashed from nine to five with the top rate for each
being slashed.
Currently, workers are taxed according to a progressive income
system ranging 5 to 45 percent on incomes of over 1,600 yuan
(US$206) per month. The changes should come into effect by
2010.
According to Gao Peiyong, an expert in finance at the Chinese
Academy of Social Sciences, the requirement on income tax returns
sets the foundation for a unitary scheme. However, experts have
called for slow progress since any revision of the tax scheme would
need to reflect the varying conditions of different brackets of
taxpayers.
An Tifu, a retired professor in finance with Renmin University
of China, advised that taxpayers be granted deductions for housing
loan repayments, children's education and medical costs, as is the
norm in many developed economies.
Last year, personal income tax collection totaled 245.2 billion
yuan (US$30.65 billion), up 17.1 percent year-on-year, SAT figures
show.
(China Daily April 3, 2007)