Personal Tax Too High in China, Will be Lowered

May 12, 2011 Taxation in China

Taxes in ChinaChinese taxpayers are facing a nationwide debate regarding the levels of personal taxation currently instated across the country. Now researchers have joined the fray, confirming that the individual tax rates are too high.

The tax rate debates kicked off on April 25th, when the National People’s Congress published draft legislation to amend the personal income tax regulations, in order to lower the general tax rates faced by individuals and introduce a higher minimum threshold for personal income taxes. The draft has already received over 190 000 reviews and feedback from taxpayers around the country.

Under current tax regulations, China’s personal income tax rate is divided between 9 income brackets, with a 5 percent tax levied on monthly earnings between RMB 2 000 and RMB 2 500, and a 45 percent tax on salaries exceeding RMB 102 000 per month. The draft legislation has proposed that the minimum earnings threshold should now be raised to RMB 3 000, and the top earnings threshold should be lowered to RMB 82 000. It is expected that if the minimum earnings level is lifted, approximately 200 million taxpayers across China will feel a direct benefit, with the average tax rate seeing a significant lowering. It is believed that the change would have a significant positive impact on the living standards of China’s low income earners.

The newly published academic research, released May 8th, suggest that in 2009 the average income of a Chinese workers was equivalent to USD 3 700, and the average tax rate for the country was 32.2 percent. According to the research, a country should not have an average tax rate of above 30 percent unless the average income exceeds USD 10 000. It was concluded that the proposal to lower tax loads should be perused.

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