Tax Burdens Slashed In China

July 1, 2011 Taxation in China

Tax Threshold in ChinaThe government of China is set to instate a series of changes to the tax system, targeted at the country’s lowest income earners , in order to improve the economic and financial situations of poorest individuals.

On June 30th the standing committee of the National People’s Congress concluded its four day bi-monthly meeting, during which legislators discussed the economic conditions and necessities of the country. At the meeting an amendment to the tax legislation was adopted, which changed the threshold at which workers need to start paying taxes will be raised from the current level of RMB 2 000 per month to RMB 3 500 per month. The new threshold is scheduled to take effect on September 1st 2011. The lowest tax bracket will now also be levied with a 3 percent tax, compared to the previous rate of 5 percent.

It was originally planned for the threshold to only increase to RMB 3 000 per month, but the level was widely criticized by the public and economists as not being enough to address financial difficulties imposed on taxpayers by the country’s inflation rate. It is currently estimated that the June Consumer Price Index level will reach 6 percent.

The threshold increase is expected to reduce government tax revenue levels by approximately RMB 160 billion per year. According to Wang Jianfan, vice director of the Ministry of Finance’s taxation department, the new changes will mean that only 7.7 percent of workers in China will be paying personal income taxes, compared to the current level of 28 percent. He went on to say that the government would soon implement a tax increase to high-earner tax rates, but refused to provide more details.

Photo by benoitflorencon