NPC Suspends Income Tax Reform
Apr. 23 – In a rare U-turn, the National People’s Congress has suspended a planned reform of China’s individual income tax law, which was originally due to have been rubber stamped yesterday, Friday, April 22.
The proposals, already approved by the Ministry of Finance, were set to increase the threshold of mandatory payment of income tax in China from RMB2,000 to RMB3,000 a month.
Such a move, if passed, would have seen some 50 million people drop out of income tax paying status and would have reduced taxable revenues collected by the government from domestic IIT by some RMB100 million annually. The threshold rise was expected to have taken effect from the second half of this year.
It is rare for the NPC to reject proposals already approved by government ministries, however NPC Chairman Wang Bangguo had stated that more time was needed to assess alternative comments and suggestions on the reform, and that a new draft amendment would need to be published in full to obtain additional feedback. That is now expected to take place in June, meaning any new changes may not be implemented this year, despite government promises to do so.
Anticipated additional changes may see the threshold rise even further, to beyond RMB5,000 per month—a move that would take a huge section of Chinese individual income tax payers out of contribution status. It may also usher in knock on effects such as the introduction of a higher tax band for high salary earners. The maximum rate of individual income tax in China is currently 45 percent.
Suspension was called for after differing views were raised over protecting low-income families, the impact of inflation, additional taxes for high earners, and increasing verification of an individual’s true taxable position. Amendments to the proposed individual income tax law are now expected to be reach further beyond a mere raising of the minimum threshold and to now include both higher tax bands for wealthier individuals, as well as increased surveillance of individuals, and especially foreigners.
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