Levy personal income tax on family basis

The collection of personal income tax should be based on a family's financial circumstances, not a person's individual income, said an article in China Business News (excerpts below).

Minister of Finance Lou Jiwei said the collection of income tax will take financial burdens into account. The reform is necessary to make the tax fairer but there are some problems to solve first.

First, personal income tax is usually withheld from the employees' salary and paid by the employers.

If the tax is levied on a family basis, the tax authorities must include the families' income into a standard system.

The establishment of the system is the tax authorities' duty, as the job of paying personal income tax cannot be done by an individual family member's employer any more, but some private and public tax agencies.

Second, the family composition is comparatively complicated. In some families, people of several generations live together.

Migrant workers often live far from other family members. The tax authority must set up a large tax inspection team to conduct a thorough inspection of family conditions.

Third, China does not have developed tax agencies and intermediary service providers, which adds to the difficulty of levying the personal income tax on a family basis.

In spite of the difficulties, tax reform can start from some simple measures. For example, if the family proves they have a person to provide for or support, the tax exemption threshold for the family members should be floated higher accordingly.

The tax reform will not necessarily reduce the government's tax revenue, if the family income conditions of the rich families are transparent to the tax authorities as well as that of their less well-off counterparts.

The tax cut will boost domestic consumption and demand as well.