Tax Change Seeks to Address Inequality

by Amit Ben-Yehoshua and Steve David Salem

China plans to implement new legislation that seeks to rearrange the country’s substantial level of inequality by raising the minimum tax threshold and by increasing the level of taxation on higher earners. Should the legislation be implemented and be a success, it would narrow the widening income gap between rich and poor – an issue threatening to affect China’s social stability. This has indeed been an important concern for the country’s top officials as mentioned in the recent National People’s Congress meeting where the country’s 12th five year plan was unveiled.

Revisions to the tax code will see the lowest level of income subject to taxation raised to 3,000 ($460) yuan/month from 2,000 ($305) yuan/month. Currently, the monthly minimum wage of a Chinese worker in Beijing stands at 1,160 yuan ($178). In addition, the maximum threshold for the bottom two brackets would be raised such that earners of 4,500 ($690) yuan/month would be subject to a marginal tax rate of 10%. According to a joint statement made by the Ministry of Finance and the State Administration of Taxation, a staggering 94% of taxpayers will fall within this category. At the other end of the scale, more people will qualify for the higher level of taxation set at 45% due to the removal of the 40% rate.

The changes are currently being reviewed by the Standing Committee of the National People’s Congress, who have published a draft amendment to the Personal Income Tax Law on its official website. The Government are also calling for public feedback to the proposals, urging people to give their opinions on these potential amendments. The deadline for submissions is May 31st.

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