A new Chinese personal income tax regime is quickly taking shape and may make its long-awaited debut in the first half of next year, the Economic Observer reported on Tuesday.
China’s ongoing reform targeting individual taxpayers is expected to feature various new deductibles, such as education expenses incurred by workers equipping themselves with a new skill, and interest payments on personal mortgages.
Other deductibles being considered include household-related costs to support elderly parents and bear a second child.
The revamped tax regime aims to alleviate the burden on low wage earners, expand the tax base among the middle class, and boost tax receipts from the highest income brackets.
Having a fair and modern individual income tax system is an essential step to achieving Beijing’s income distribution reform ambition first unveiled in the 3rd Plenum of the 18th Chinese Communist Party Congress in 2013 by the current generation of leaders headed by Xi Jinping.
China is trying to step away from simply bumping up the minimum income tax threshold, which would not benefit individuals at the lowest brackets, and adopt a fairer, more consolidated income tax calculation methodology to comprehensively tax salary incomes as well as capital gains, among others.
Currently, China’s income tax regime has 11 different categories including salary, dividend, property leasing, with their own respective rules for deducting expenses and applying tax rates.
China collected 861.6 billion yuan (US$125 billion) in personal taxes last year, accounting for merely 6.3% of the overall tax revenue. This narrow tax base is a sharp contrast to the makeup of taxes within many other developed countries.
In the United States, personal tax accounts for as much as 45% of overall tax revenue, according to the article from the Economic Observer.