China’s New Measure to Narrow Wealth Gap: Cutting Tax for Low-income Class

Source: trak.in

Chinese lawmakers are revising the personal income tax law recently. The draft amendment would raise the minimum threshold for taxable personal income from 2,000 yuan (304 US dollars) to 3,000 yuan per month (456 dollars), and reduce the number of income tax brackets from nine to seven.

Those two adjustments will cut tax for low- and middle-income earners and raise the tax rates on people whose monthly salary is more than 19,000 yuan (2911 US dollar), aiming to narrow the wealth gap in China, as well as to encourage more domestic consumption.

Taxable Income (yuan) Current tax (yuan) New tax (yuan) Change [=new-current]
3000 75 0 -75
4000 175 50 -125
5000 325 125 – 200
7500 725 375 -350
8000 825 475 -350
9000 1025 675 -350
10,000 1225 875 -350
15,000 2225 2025 -200
19,000 3025 3025 0
20,000 3225 3275 50
30,000 5625 5775 150
50,000 10725 11375 650
70,000 17425 17975 550
100,000 28825 30175 1350

China is in desperate need of those tax revising measures. It has reached a dangerous point that raises great angers among workers in all kinds of industries, which  have been widely unleashing on the Internet through emerging social media such as micro blogs, blogs and BBS, and led to strikesin many provinces.

internationalliving.com

While the lawmakers’ good intention deserves applause, they still ignore an important loophole in the tax laws: the taxable income in China’s current personal income tax laws measures mainly wages, not including dividends, interests, gains from property or other type of income. It makes the high-income class get richer by avoiding paying tax for their non-wage income, which is a large portion of their earnings. Therefore, unless the lawmakers redefine the taxable income as “all income from whatever source derived,” and put it into practice, China can never significantly reduce the wealth gap, not even close.

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About Yifei Liu
I am a senior research assistant at International Food Policy Research Institute (IFPRI). I received a master’s degree in journalism from UW-Madison with a focus on international and economic reporting in 2011 and a B.A in journalism from Renmin University of China in 2009. I am now living in Alexandria, VA.

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