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China plans individual income tax reform
Updated: 2004-07-28 16:58

China is planning to launch an individual income taxation reform, which aims at improving the existing taxation system and better preventing tax evasions, sources with the Ministry of Finance said in Beijing Tuesday.

"The collection of individual income taxes must follow the principle of fairness and keep the burden on each tax payer at a reasonable level," said an official from the ministry's tax affairs department. "Meanwhile, it's also necessary to remove the loopholes in the system which give convenience to tax evaders."

A good income tax system should play a more significant role in "readjusting social income distribution" while contributing to State revenue, the official added.

Following more than two decades of reform and opening-up, especially since the introduction of a socialist market economy in the early 1990s, China has seen an increasingly widening social wealth gap. In recent years, many of China's nouveau riches such as entertainment stars, have been caught in scandals of tax dodging.

The official conceded that China's current individual income taxation system has exposed some problems which are "incompatible with the economic growth".

To make the reform a success, it is prerequisite to build an information network between tax departments and the banks to better monitor the actual income status of the individuals, he noted.

According to latest statistics released by the Finance Ministry, China collected some 141.8 billion yuan (US$17.2 billion) in individual income taxes in 2003, which accounted for 6.5 percent of the total State revenue.

China started to collect individual income tax in 1980. In 1994, the country conducted a major reform of its individual income tax system, which divided taxpayers into two categories: residents and non-residents, with the latter referring to people having no permanent residence in China or having stayed in China for less than one year.

Residents are required to pay taxes for all their income, made both home and abroad, while non-residents only have to pay taxes for their income obtained in China.

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