China Plans to Increase Personal Income Tax Threshold

In an attempt to stimulate consumer spending, China is carrying out its first major tax reform in the last seven years. The country plans to raise the minimum threshold for personal income tax.

The Chinese government is planning to raise the individual income tax threshold from 3,500 yuan per month to 5,000 yuan, as well as carry out taxation deductions and other tax reforms in a bid to relieve personal tax burdens.

Described as "an unprecedented tax reform", an amendment draft for the Individual Income Tax Law has been submitted to the country's top legislative body for review, which proposes to raise the tax exemption amount from 3,500 yuan (US$543) to 5,000 yuan (US$776) per month, Xinhua reports.

The draft also for the first time allows personal tax deductions for spending on children's education, continuing education, medical fees for critical illness, interest for housing loans as well as housing rent.

A comprehensive calculation method of net taxable income combining salary incomes, labor incomes, remuneration as well as royalties will also be introduced for the first time if the draft is passed.

Other notable possible changes include improving the tax rate structure and introducing the anti-avoidance clause.

The first discussion on the draft will take place on Tuesday at the bimonthly session of the Standing Committee of the National People's Congress.

The draft would be China's seventh major amendment to the individual income tax law since its introduction in 1980. The most recent, carried out in 2011, increased the threshold from 2,000 yuan (US$310) to 3,500 yuan (US$543).

Statistics from public sources show that the Chinese per capita national income last year reached US$8,790, which is an increase of around US$3,500 over 2011.

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