China's top legislature is looking at cutting income tax for average wage earners and ensuring higher income earners pay their due.
Proposals put forward suggest raising minimum taxable income from 800 yuan (US$98.8) to 1,500 yuan (US$185) and forcibly asking high-income groups to file tax returns and pay taxes directly.
Shi Yaowei, director of the tax department under the Ministry of Finance, said among China's 24 categories of taxes, personal income tax is the most important for adjusting social property allocation.
The divide between China's rich and poor has widened over the last few years and continues to do so. China's current Gini Coefficient - an internationally accepted measurement of income equality - is 0.447.
"According to international standards, when a country's Gini Coefficient is above 0.4, it means the country's rich-and-poor gap is excessively wide," Shi said.
Statistics show that wage earners are China's mainstream personal income tax payers. In 2004, China's revenue from personal income taxes was 170 billion yuan (US$21 billion), 65 percent of which was collected from salaried workers. This despite the fact that only 20 percent of China's population enjoys 80 percent of the country's social wealth.
Liu Huan, one of China's tax experts, said that the country's 300 million wage earners have borne the country's major tax burden. They seldom evade taxes because most of them have had only one income source, which is easy for tax authorities to inspect. Another reason is that, their work units or companies often deduct tax payable from their monthly salaries.
"However, the rich always have had more than one income source and more opportunities to evade taxes," Liu said.
The minimum taxable income since 1993 has been 800 yuan (US$98.8). In 1993, only 1 percent of citizens earned more than 800 yuan one month, but by 2002, the figure had risen to 52 percent. In 2003, the consumer price index increased by 60 percent from that of 1993.
Correspondingly, 800 yuan is no longer sufficient to cover a citizen's basic living expenses.
"Raising the minimum taxable income from 800 yuan to 1,500 yuan (US$185), means that the government would lose more than 20 billion yuan (US$2.5 billion) in tax revenue, " Shi said.
But Shi and his team evaluated the 1,500-yuan minimum taxable income as a reasonable option between the government's financial capability and public expectations.
Article 8 of the current law reads:
"For individual income taxes, the income earner shall be the taxpayer and the paying unit or individual shall be the withholding agent. Taxpayers who receive wages or salaries from two or more payers, or taxpayers without withholding agents, shall file tax returns and pay tax themselves."
In reality, when the withholding agent fails to withhold tax, or does not withhold enough tax, the agent has to pay a fine, but taxpayers do not bear any legal responsibility for non-payment of tax. This makes it easy for many high-income earners to evade paying their taxes.
The draft amendments to that Article provide that as long as one's income exceeds a certain sum designated by the State Council (or the cabinet), the taxpayer shall file tax returns and pay taxes directly. The tax authorities are entitled to fine those who do not file tax returns or file inadequate tax returns, and to administer legal punishment. The maximum fine could be five times more than the tax payable.
(Xinhua News Agency August 24, 2005)
