Less Taxes, Better Taxation
The latest amendment to China’s Individual Income Tax Law eases taxpayers’ burden and improves tax equality
Against all odds, a government mobile app launched in early 2019 in China has risen in popularity among netizens. Although it has nothing to do with fun or leisure, the app is nevertheless closely linked to everyone’s wallet. Developed by the State Administration of Taxation, all employees can now declare their information via the app to receive tax deductions on their individual earnings.
The information to be provided concerns six expenditures: children’s education, continuing education, medical treatment for serious illnesses, home loan interest, rent and care for the elderly.
Father of two, Chen Xin has to repay his mortgage every month. Once his information was validated by the application, the 35-year-old computer scientist living in Beijing quickly made the calculation: Thanks to the latest amendment of the Individual Income Tax Law, he now only has to pay 700 yuan ($104) tax on his monthly salary of 20,000 yuan ($2,960), compared to 2,870 yuan ($425) before the reform.
Tax relief, especially for low-to-medium income earners like Chen, is what the Central Government targeted with this seventh amendment to the law since it first came into effect in 1980.
In fact, since October 1, 2018, the amended Individual Income Tax Law has been partially implemented. One of the obvious aspects of this amendment is raising the tax exemption threshold from 3,500 yuan ($518) to 5,000 yuan ($740) per month or 60,000 yuan ($8,880) per year. This is the fourth time that the exemption threshold has been raised in China. The last adjustment took place eight years ago in 2011, when it went from 2,000 yuan ($296) to 3,500 yuan.
Deputy Minister of Finance Cheng Lihua indicated that after the increase of the tax exemption threshold to 5,000 yuan, 44 percent of the urban taxable labor force do not need to pay individual income tax any more, against 15 percent previously. According to statistics published by the Ministry of Human Resources and Social Security, until the end of 2017, there were 425 million urban workers. This means that