Should the tax threshold be raised?

Despite persistent appeals from the public to ease personal income tax burdens, authorities say they do not plan such a move anytime soon.

Lower tax may help stimulate consumption, but authorities cite limited room for reduction.

Some say raising the threshold for taxable personal income would benefit ordinary Chinese, but others argue that such a measure could backfire and "rob the poor to bail out the rich".

Should the taxable personal income threshold be raised? Experts gave opposing views on the website of Caijing magazine.

Yes

Ping Xinqiao, professor of Peking University:

There is scope to raise taxable personal income. The threshold can be upped to between 2,800 yuan and 3,200 yuan from the current 2,000 yuan. Businesses could do this by increasing recruitment while lowering workers' wages, helping improve the country's overall employment situation. The employment rate will likely rise two percentage points if the threshold is raised to 2,800 yuan.

Theoretically, the change to the threshold will impact social welfare from several perspectives.

It would reduce the proportion of wage earner tax payers that must pay the income tax. It would bring about changes to work incentives and have an influence on the employment rate and workers' productivity. It would also reduce government revenue and therefore its ability to make transfer payments to underdeveloped areas and underprivileged demographics.

A reasonable threshold can only be set by balancing social fairness, work incentives and social welfare.

Wu Rengqiang, independent commentator:

Raising the thresheld is not only for the mere purpose of stimulating consumption. It will also help ease tax burden on the public.

When experts say only 10 percent of the employed would benefit from the adjustment, they ignored the fact that family members of the "beneficiaries", whose number may be several times the 10 percent, will also benefit from the tax reduction. The adjustment may have no implications on many government employees, but for bread earners that have families to support, a penny saved is a penny earned.

No

Cui Wei, China University of Political Science and Law:

Neither experience nor theories support a view that raising the taxable personal income threshold will stimulate consumption.

On the contrary, such a move will mainly result in reducing tax payment by China's top rich, who account for some 10 percent of the Chinese population. It will hinder the process of establishing an efficient and fair taxation system in the country.

As China has adopted the policy of progressive taxation, those who have higher salaries would benefit more from raising the threshold than those who earn less. Most importantly, raising the threshold would erode the government's revenue, which will then have to rely on taxes that are less efficient than the personal income tax to fund public spending.

Liu Shangxi, a researcher with the Ministry of Finance:

Some people fancy that the reform on personal income tax would help stimulate domestic consumption and attain the goal of fair distribution of wealth all at once.

But the reform is subject to certain conditions. The fundamental problem to solve first is deciding the direction of the reform.

Individuals who pay income tax account for about 4 percent of the country's total employed population and 10 percent of the urban employed. Therefore, people who have higher incomes would benefit more from raising the threshold.

Unlike some foreign countries - where personal income tax plays a major role in the taxation system - China's personal tax accounts for only a small proportion of the country's total tax collection. Therefore, it can do little to promote fair distribution of wealth.

(China Daily 05/18/2009 page2)