Personal income tax targets the rich
(People's Daily Online)
Updated: 2005-09-20 15:53

China's State Administration of Taxation has issued new measures for administration of personal income tax, according to a report on the website of the Administration, International Finance News reports.

"The direction is right," said Gao Huiqing, official with the development research department of the State Information Center, "the benchmark is raised and what should be exempted is done so, this will help adjust the income gap and its essence is equity."

Expert holds that the first highlight of the regulation is the establishment of personal account, which demands taxation departments take a tax payer's number of ID card as the sole identification and classify, select, accumulate and analyze the information on an individual basis and adopt an intensive management.

Gao thinks this measure is just targeted on the high-income class. Tax evasion is inevitable under the current system in which different items are separated in taxation. Now the sources of more and more people's incomes are diversified, the "personal account" system can strengthen the regulation and it is a must, said Gao.

Another highlight of the regulation is its management over the high-income class. It is required that staff in finance and insurance, etc, investors, stars be included in the group of key taxpayers. Dynamic, rotating key management will be adopted on people in six categories such as the high-income and celebrities.

On this, Zhong Dajun, director of Center of Dajun Economic Observation and Research expressed agreement, saying that more tax should be levied on the rich. Those who purchase luxury goods should be levied heavily. Taxation should be tightened on those who earn from capital. Now in China, capital income is more than labor income, which is rare in many countries.

Gao said, the richest in China are not stars but mainly entrepreneurs, especially those of non-state owned enterprises and the latter are hidden millionaires. It has been a defect that there was no regulation detailed enough on them.

Currently, the wealth gap is widening and the ratio of residents' income and consumption to GDP is decreasing.

Since the 1970s, the proportion of people's salaries to GDP has been falling year after year. 16 of the past 23 years saw lower ratio than the previous figure. The figure at the end of 1990s was five percentage points lower than in the 1980s and salaries were seriously deviant from the value of workforce, said Li Zhining, research fellow with the Economics Institute of the Chinese Academy of Social Sciences.

According to Wang Xiaolu, deputy director of National Economy Research Institute, in China, the ratio of residents' final consumption expenditure to GDP has been decreasing since 1990 and to a record low of 42 percent in 2004, which is even lower than the level in the three most difficult years under the planned economy.

Therefore, it is expected that the regulation can "bridge the wealth gap."

"Personal income tax only accounts for seven percent of GDP, so it can not become the main leverage for narrowing the wealth gap, " said Hao Ruyu, vice president of Beijing-based Capital University of Economics and Business, "taxation is mainly for organizing incomes, and its function of adjusting the economy and incomes is derivative."

Moreover, the cost of personal income taxation is huge.

Zhong Dajun said they found in their investigation that the cost can be as high as 50 percent or even higher. If personal income tax must be levied, 3, 000 yuan can be a proper benchmark.

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