Some 60m out of tax net as new rules take effect

Updated: 2011-09-01 20:06


  Comments() Print Mail Large Medium  Small 分享按钮 0

BEIJING - Amended rules on personal income tax came into effect on Thursday, which means about 60 million Chinese will not be taxed on what they earn going forward.

Only 24 million wage-earners will have to pay individual income tax after the amended law raised the monthly tax exemption threshold from 2,000 yuan ($313.2) to 3,500 yuan, according to the Ministry of Finance.

The new law reduces its previous nine-category progressive mechanism to a less-segmented seven-rank system, with tax rates ranging from 3 to 45 percent.

It also cuts the minimum tax rate from 5 to 3 percent for people whose monthly income is between 3,500 and 4,500 yuan.

A woman surnamed Yang who works in Beijing said that, under the amended tax strategy, she will be taxed 30 yuan per month on her monthly taxable income of 4,503 yuan, saving her 220 yuan each month in tax.

"I now pay 2,600 yuan a year less than before, which could be used for taking a short trip," she said.

The new rules benefit lower- and middle-income groups the most, and the 3,500 yuan tax exemption threshold is suitable for now, said Zhang Bin with the Chinese Academy of Social Sciences.

In Beijing alone, the tax revenue of the fourth quarter this year will be 2.6 billion yuan less than the previous quarter, keeping that amount of money in consumers' pockets, according to Beijing Local Taxation Bureau.

The lower- and middle-income groups are likely to spend the windfall, while the consumption of those with higher incomes will not be affected by the new rules; therefore, national spending is likely to go up, said Zhu Jianfang, chief economist of CITIC Securities Co., Ltd.

According to the estimates of Nanjing Securities Co., Ltd., when the monthly tax exemption threshold increases by 1,000 yuan, the spending of urban dwellers will rise by 1.3 to 1.72 percent, and the spending of those living in rural areas will jump by 2.51 to 2.85 percent.

Personal income tax was initiated in China in 1981, with a monthly threshold of 800 yuan. The threshold later increased to 1,600 yuan in 2005 and 2,000 yuan in 2008.

Before the latest tax exemption rules, the government's individual income tax revenue accounted for about 6 percent of its total revenue each year.