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Cut tax to fight inflation

(China Daily)
Updated: 2010-12-21 14:18

The benchmark interest rate is still 2.5 percent, although the consumer price index rose to a 28-month high of 5.1 percent last month. It means negative interest for the economy. It also means shrinking of individual wealth, to offset which tax cuts should be introduced, says an article in China Youth Daily. Excerpts:

Since the government has raised the latitude for inflation from 3 percent to 4 percent it can earn profit by issuing more paper money. To protect people from more monetary troubles and for a fairer distribution of wealth, it should also raise the income tax threshold.

Now, people who earn 2,000 yuan ($299.51) a month or more have to pay income tax. The proposal was to raise it to 3,000 yuan in 2009 and 5,000 yuan in 2010. But neither the National People's Congress nor the Chinese People's Political Consultative Conference has taken any action to raise the income tax cut-off point.

Middle- and low-income people, the main taxpayers in China, are suffering the most because of rising inflation. Raising the income tax threshold will help them save some money.

The government can raise income tax threshold without suffering much loss, given the huge amount of tax revenue that it earns now.

It is possible that the government is not doing so because it wants to cultivate tax consciousness among all people. But that can be done in United States, not in China where people earn much less than in the US.