They debated, they differed and dug deep for a solution to a vexing issue: How can personal income tax be levied to benefit as many as possible while at the same time ensuring State finances do not suffer too much?

The two main concerns were: what should be the income threshold to pay taxes and whether there should be a unified tax rate across the country?

While no conclusion was meant to be reached at the country's first-ever legislative hearing on the hot-button issue held yesterday in Beijing, it is clear that people's views are actively being sought on a matter of national concern.

Whatever the eventual outcome, foreigners - who pay income tax only if their monthly income exceeds 4,000 yuan (US$493) - would not be affected, said a senior taxation official.

But many foreign businessmen and enterprises are likely to be keenly watching developments as most of their employees are Chinese and changes would have a bearing on their income levels.

Last month, the National People's Congress (NPC), the top legislature, deliberated but was divided on a draft amendment to the Law on Personal Income Tax, which proposed raising the threshold at which income tax is levied from 800 yuan (US$99) to 1,500 yuan (US$185) per month.

A public hearing was then called to solicit opinion from various circles.

Yesterday, 17 of the 20 speakers - including civil servants, academics and migrant workers - chosen from nearly 5,000 applicants, favoured raising the starting line to 1,500 yuan or higher, with some suggesting 3,000 yuan (US$370).

But there were differences over whether there should be a unified threshold covering the whole country or allowances made for regional differences.

Representing migrant workers, Wu Zhicai, 22, from Chongqing, said those making less than 2,000 yuan (US$247) a month should not be taxed. "The wealth gap between the rich and the poor is widening," Wu said. "Taxation reform should be used to help avert (social) discord."

Zou Zhen, representing the All-China Federation of Trade Unions, said 80 per cent of workers surveyed in five provinces preferred the threshold range between 2,000 yuan and 3,000 yuan.

Jiang Hong, a worker from the Phillips (China) Investment Co, was less demanding.

"I propose lifting it to 1,600 yuan (US$197)," he told legislators. "Raising the cut-off point will directly increase incomes."

The 1,600-yuan mark also reflects the situation in some regions, including Guangzhou, which has already raised the tax threshold to that level.

Song Jingchang, a worker at a tourism site in North China's Qinhuangdao, Hebei Province, said the level should be based on the national average salary.

This year, 50 per cent of salaried workers are expected to earn 1,506 yuan (US$186) a month. The 1,500-yuan threshold means many salaried workers will pay income tax, a situation against the legislation's intention, he said.

In addition, with the current rate of income growth, if the 1,500-yuan (US$185) level were adopted, it would soon have to be raised again. Song said if the threshold were set higher at 3,000 yuan, it could be in force for up to 12 years.

Lu Langui, vice-director of the Guangdong bureau of taxation, said that, based on different living standards in different areas, provincial governments should be allowed to raise the starting line by up to 20 per cent.

The 800-yuan threshold was set in 1993, when only 1 per cent of citizens earned more than 800 yuan per month, but in 2002, the income of 52 per cent of people exceeded that.

Chinese pay income tax on a sliding scale starting with 5 per cent for those earning above 800 yuan with a maximum of 45 per cent for those making more than 100,000 yuan a month.

Shi Yaobin, head of the Taxation Department of the Ministry of Finance, said yesterday that the State would lose more than 20 billion yuan (US$2.5 billion) a year in revenue if the threshold were raised to 1,500 yuan.

(China Daily 09/28/2005 page1)