Tax reform to improve people's income

In the Government Work Report delivered to the first session of the 13th National People's Congress on Monday, Premier Li Keqiang said China will raise the individual income tax threshold and create expense deductions for items such as children's education and treatment for serious diseases, which are important measures to help improve people's incomes and increase their sense of gain, happiness and security.

Everyone will benefit from the personal income tax reform, Xiao Jie, minister of finance, said at a news conference on Wednesday.

Thanks to the rising incomes in recent years, an increasing number of people have to pay individual income tax. The 2018 budget report advocated the acceleration of the financial and taxation system reform, which will include the promotion of comprehensive and classified combined individual income tax system reform, reasonable increase in tax exemption standards and higher expense deductions for items such as children's education and treatment for serious diseases.

The individual income tax reform will therefore increase people's disposable income.

At present, the individual income tax threshold is 3,500 yuan ($552.27) per month, and people are wondering how much will the threshold be raised to this time.

Comprehensive and classified combined individual income tax system reform, being promoted for years, is expected to make substantive progress this year, and the raising of the individual income tax threshold and special expense deduction will provide targeted help for individuals and households in need.

The individual income tax threshold was raised to 3,500 yuan per month on Sept 1, 2011. But in the more than six years since then, the living expenses of individuals and families have continuously increased. And although the people want the government to raise the threshold further, the process to do so is complicated, as it relates to the positioning of individual income tax.

Since individual income tax will play an increasingly important role in government revenue, such a tax will continue to be imposed on the public. Therefore, it would be appropriate to raise the individual income tax threshold to 5,000 yuan per month and build a dynamic adjustment mechanism that works according to the consumer price index of the time.

The special expense deduction, too, is a significant reform measure aimed at improving people's livelihoods, as it will incorporate the costs of children's education and treatment for serious diseases.

Given China's fast-rising aging population, the authorities have decided to implement policies that will encourage all couples to have two children, in order to ensure sustainable demographic dividend through the sustained supply of working-age people. The deduction of expenditure on children's education from taxable income could reduce families' economic burden of raising children, and enable the children to get better education, if the costs of preschool education, senior high school education and higher education are all included in the range of special expense deduction.

The ongoing healthcare system reform has improved the quality of medical treatment in hospitals, but raised the cost. The high cost of medical treatment is not only a heavy economic burden on households with patients suffering from serious illnesses, but also has forced many families into "poverty". The special expense deduction for medical treatment for serious diseases can thus reduce the economic burden of such individuals and families, help them get better medical treatment, and increase their disposable incomes.

As the rise in living expenses has been the most striking expenditure increase for households in recent years, housing mortgage interest should also be included in the range of special expense deduction. The move will be in accordance with the intended legislation on individual income tax, and it will not stimulate the real estate market.

The special expense deduction should also incorporate the expense of supporting the elders to reduce people's economic burden in the backdrop of a rapidly aging society. And since the special expense deduction is new to China's individual income tax reform, it requires in-depth research and exploration to ensure it improves people's livelihoods and works in accordance with the requirement of a modern individual income tax system.

The author is a research fellow at the National Academy of Economic Strategy, Chinese Academy of Social Sciences.