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NPC to raise income tax threshold

By Fu Jing (China Daily)
Updated: 2008-11-22 10:23

China's highest legislative body, the National People's Congress (NPC), has "reached a consensus" to boost the personal income tax threshold soon to encourage domestic consumption, economist Zhou Qiren said on Friday.

Zhou, a consultant to the NPC on tax reforms, announced the latest development while calling for "aggressive tax-reduction measures" at corporate and personal levels to stimulate domestic demand hit by the global economic meltdown.

"As far as I know, the NPC has already reached consensus to do that (increase the benchmark of personal income taxation)," Professor Zhou from Peking University told a management forum in Beijing.

The monthly personal income tax threshold, which currently stands at 2,000 yuan ($290), should be raised to a much higher level in order to boost personal disposable income and spending, he said.

He did not reveal what exactly that figure should be but said the proposed threshold of 8,000 yuan per month by some experts was "too high".

At corporate level, Zhou said China should not only step up value-added tax reform but also slash the VAT rate from 17 to 7 percent.

Two weeks ago, the central government announced a 4-trillion-yuan stimulus package and VAT reforms, under which companies will no longer pay tax on equipment purchases.

"That is not enough and the country should reduce the VAT rate dramatically to reduce the burden on business," Zhou said.

Meanwhile, China should reduce its import taxes while increasing export tax rebates.

"All these measures will put the government in a difficult position financially but we have to do this," Zhou said, urging governments at various levels cut their own administrative spending to help deal with the budget deficit.

A radical tax cut package was among the suggestions he has made to the central government.

Apart from fiscal stimulus and monetary policies, China needs comprehensive reforms and broader policy packages to cushion against the negative impact of the unfolding financial crisis, Zhou said.

He urged the government to take further measures to lift barriers private companies face when investing in monopoly sectors, education and healthcare.

He also suggested the government give up its pricing regulations and let the market have a final say.

"It's high time we should do that and today's worsening economic situation has partly resulted from incorrect signals due to too much pricing regulation," he said.