New IIT Proposal Maintains Tax Exemption Threshold, Adjusts Tax Rates

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Update (Jun. 30, 2011): On June 30, China’s NPC officially passed revisions to the country’s IIT Law, raising the exemption threshold for Chinese citizens to RMB3,500. For further information, please click here.

Jun. 28 – After two months of consultations with the public and experts, the National People’s Congress finally disclosed the second draft for the individual income tax (IIT) reform yesterday. Compared to the first draft released in April, the new proposal adjusts the lowest tax rate, but does not amend the amount of deductible income for Chinese citizens, despite some 80 percent of people’s cry for a change.

According to news from the Chinese media, the new IIT proposal plans to set the IIT exemption threshold at RMB3,000 for Chinese nationals, the same level suggested in the last proposal, but an RMB1,000 increase over the current deductible income amount.

As the last draft for the IIT reform adjusted tax rates and reduced the number of tax rate levels from nine to seven, the new draft maintained the major parts of the former draft – only adjusting the rate for the first tax level from 5 percent to 3 percent. The adjusted tax rates are as follows:

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