The threshold at which people pay personal income tax is expected to be lifted to CNY5,000 a month from the current CNY3,500, according to a draft amendment to the Individual Income Tax Law, as the National People’s Congress (NPC) – China’s legislature – is revising the personal income tax code in a sweeping overhaul of the tax system. Specific personal income tax changes aim to reduce taxpayers’ burdens and boost consumption. The draft was submitted to the NPC Standing Committee’s bimonthly session for its first discussion on June 26. A draft revision usually receives three readings before adoption.

According to the draft amendment, the previous method of taxing monthly income will be replaced with a new calculation that focuses on taxing annual income. “The new method will be fairer and more reasonable for those whose monthly salary vary,” said Zhang Bin, an expert from the National Academy of Economic Strategy of the Chinese Academy of Social Sciences. If the revisions are adopted, those whose monthly salary ranges from CNY5,000 to CNY20,000 will see their tax cut by more than 50% and those whose monthly salary ranges from CNY20,000 to CNY80,000 will see their tax cut by 10% to 50%. The amendment defines resident individuals and non-resident individuals as two types of taxpayers. In addition, the length of time used to distinguish between the two groups will be adjusted to 183 days from the previous 365 days.
The move is expected to increase residents’ income and enhance consumption power because it reduces the tax burden for individual taxpayers, especially people of low to medium income, Finance Minister Liu Kun wrote in the draft.

The revision is the biggest tax overhaul in over two decades. China’s income tax rates for individuals, comprising seven brackets with rates ranging from 3% to 45% of income, are expected to be adjusted. For the first time, items deductible for personal tax will include such expenses as the cost of children’s education, medical fees for major illnesses, interest on housing loans, and housing rent. The government will set specific rates for tax deductions in each category once the draft amendment is approved by the NPC Standing Committee. For the first time, taxation will cover four income categories – salaries, remuneration for personal services, authors’ remuneration and royalties. Yan Yuejin, Research Director at E-house China’s R&D Institute, said deductible real estate items are expected to benefit a wide group of residents who either rent or hope to purchase a home.

In 2017, China’s total tax revenue rose by 10.7% year-on-year to CNY14.4 trillion, and tax revenue from individuals went up by 18.6% year-on-year to CNY1.2 trillion, the China Daily reports.