Income tax needs quick fix

Minister of Finance Lou Jiwei gives a press conference at the press center of the two sessions, March 7, 2016, Beijing. [Feng Yongbin/chinadaily.com.cn]

Despite calls for the current threshold for individual income tax to be raised, the standard has remained unchanged since it was raised from 2,000 yuan ($307) to 3,500 yuan in 2011.

At a news conference on Monday, Finance Minister Lou Jiwei said that indiscriminately raising the threshold would be unfair and the government was considering various factors in taxation reform based on financial burdens, such as housing mortgages, expenditure on education and caring for elderly family members.

Lou's remarks should remind those calling for the tax threshold to be raised to change their perspectives on tax income.

The threshold has been raised three times since 1980 when the starting point of 800 yuan ($123) was confirmed. The past adjustments have raised people's expectations for a higher threshold in recent years. However, the past adjustments have made it increasingly difficult to regulate the country's income distribution and narrow the rich-poor gap. Introducing a higher exemption threshold would only mean a small increase in income for most ordinary taxpayers.

With different exemption thresholds and tax rates for different incomes, the current individual income tax system has to a large extent been reduced to a "salary tax", which means there is no effective way of taxing those with high incomes whose sources of income are diverse, or addressing burdens on raising children.

The existing personal income tax system has to improve. What the country needs is a tax system that can take into consideration individuals' various sources of income and their different economic burdens. Such a tax system can only be built on a well-developed personal information infrastructure, such as accurate disclosing of people's incomes and their sources of income, as well as a sound personal credit evaluation system.

At the same time, the country still should accelerate efforts to promote the fairer distribution of social wealth.

Beijing Youth Daily